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Environmental taxes

ICAEW Tax Faculty provides analysis of the announcements relating to environmental taxes in the 2018 Budget.

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Download a PDF of the Tax Faculty's summary of the announcements on tax and related matters in the Autumn Budget 2017

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New plastics tax

A new tax on the production and import of plastic packaging will be introduced from April 2022. Subject to consultation, this tax will apply to plastic packaging which does not contain at least 30% recycled plastic. The aim is to provide financial incentives for manufacturers to produce more sustainable packaging. The tax will work alongside other measure to tackle the use of single-use plastics.

New carbon emissions tax

The government will legislate in FB 2018-19 to introduce a new carbon emissions tax to help meet its legally-binding carbon pricing commitments under the Climate Change Act in the event of the UK leaving the EU without a deal in 2019.

The tax would apply to all stationary installations currently participating in the EU Emissions Trading System (ETS). For 2019, a rate of £16 would apply to each tonne of CO2 (or other greenhouse gas on a carbon equivalent basis) emitted over and above an installation’s emissions allowance, which would be based on the installation’s free allowances under the EU ETS.

The government is also legislating so it can prepare for a range of long-term carbon pricing options.

Company car tax and VED: carbon dioxide emission regime

The impact of the Worldwide harmonised Light-vehicles Test Procedure (WLTP) on the VED and company car tax systems is to be reviewed. Legislation will confirm that, for the purposes of VED and company car tax, the applicable CO2 figure for cars will be based upon WLTP. WLTP aims to provide a closer representation of ‘real-world’ fuel consumption and CO2 emissions.

For cars registered prior to 6 April 2020, HMRC will continue to use the current New European Driving Cycle (NEDC) test procedure for the purposes of collecting company car tax. Similarly, cars first registered prior to 1 April 2020 will maintain their current VED treatment.

Climate change levy rates

The rebalancing of the electricity and gas main rates of climate change levy (CCL) is to continue. The electricity rate will be lowered in 2020/21 and 2021/22, and the gas rate will increase in these years so that it reaches 60% of the electricity main rate by 2021/22. Other fuels such as coal will continue to align with the gas rate. The rate of CCL for liquefied petroleum gas will remain frozen at the 2019/20 level in both 2020/21 and 2021/22.

Carbon price support rates

The price of EU ETS allowances has risen significantly over recent months, raising the Total Carbon Price (currently made up of the EU ETS price and the carbon price support (CPS) rate). The CPS rate will be frozen at £18 per tonne of carbon dioxide emitted for 2020/21. From 2021/22, the government will seek to reduce the CPS rate if the Total Carbon Price remains high.

Aggregates levy rates 

(para 2.31)

The Aggregates Levy rate for 2019 to 2020 will be frozen, but it is the intention to return the Levy to index-linking in future. 

Landfill tax rates 

The standard and lower rates of landfill tax will be increased in line with RPI, rounded to the nearest 5p, for both 2019/20 and 2020/21.