From 1 September 2024, there are changes to the VAT treatment of voluntary carbon credits in the UK. Here’s what you need to know:
- Background:
- Voluntary carbon credits are tradable instruments issued by independently verified carbon-crediting programs. They represent a reduction or removal of one metric tonne of carbon dioxide or an equivalent amount of greenhouse gases from the atmosphere.
- Initially, voluntary carbon credits were treated as outside the scope of UK VAT because there was no evidence of a secondary market and they couldn’t be incorporated into onward supplies.
- Changes:
- Due to significant changes in the voluntary carbon credit market, including the emergence of secondary market trading and businesses incorporating these credits into their onward supplies, from 1 September 2024, the sale of these carbon credits must be treated as taxable for VAT where the place of supply is in the UK.
- The following activities remain outside the scope of VAT:
- The first issue of a voluntary carbon credit by a public authority.
- Holding voluntary carbon credits as an investment (with no economic activity).
- Donations made to voluntary carbon credit projects.
- Sales of voluntary carbon credits from self-assessed projects with no independent or third-party verification.
- Terminal Markets Order:
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- The Terminal Markets Order provides a VAT zero rate for wholesale commodity transactions made by members on specified terminal markets.
- Starting from 1 September 2024, HMRC will allow this VAT relief to apply to contracts in taxable voluntary carbon credits traded on terminal markets, within the terms of the relief.
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