In its latest progress report to parliament, the Climate Change Committee (CCC) have challenged HMRC to consider how tax policy, and the wider tax system, could support a transition to net zero.
The Government is committed to achieving net zero by 2050, and the CCC is tasked with monitoring the progress being made towards this.
Whilst leading the way in respect of the targets it has set itself, the UK is not walking the walk as far as implementation goes.
Based on the recommendations made in this year’s report, we anticipate that a Net Zero Tax Review is likely to take place in 2023.
Essentially, the Government needs to give consideration to how it can use tax policy to positively encourage businesses and individuals to move towards a greener way of living and working, and so towards net zero.
At present, whilst steps are being taken towards rewarding green behaviour, there are still an abundance of policies that appear to penalise those trying to make eco-friendly decisions.
The CCC does recognise that incentives are going to cost and so the Government are advised to think about how the expense of transition will be met, but also how revenues generated from any new taxes might be utilised for the benefit of the cause.
There is scope to use the UK tax system to quicken the pace of the shift itself, by incentivising adoption and making decarbonisation less cost-prohibitive for some.
Tax policy to support net zero across sectors
As chartered accountants and business advisers, we work with businesses from a range of sectors and industries – all of whom will be expected to show that they are working towards net zero, at some time in the not-so-distant future, if they are not already doing so.
The Institute for Government published a report, back in 2021, on the existing and potential relationship between the tax system and net zero ambitions, which highlighted the need for Government to develop sectoral strategies in respect of the transition.
The CCC picks up on transport and aviation, waste, and buildings, in some of its key recommendations, for example.
An example: Electric Vehicles
The uptake of electric vehicles (EVs) has led to a decline in fuel duty receipts. Whilst it’s right that the Government should continue to encourage people to switch to electric, it is likely that they will need to consider an alternative tax – for example, a motoring tax – to replace fuel duty.
To incentivise people to make eco-friendly changes in their everyday lives, it’s conceivable that the Government may need to make some not so favourable policy decisions in parallel to ensure targets can be met.
In respect of EVs, incentives to accelerate commitment to a switch include favourable benefit-in-kind tax rates, VAT provisions, capital allowances and exemption from Vehicle Excise Duty (VED).
To read more about the tax implications of EVs, from a business perspective, click here.
How can George Hay help?
The move towards net zero is something we all have to be aware of, in our capacity as business owners and members of society.
Discussions are evolving all the time, but it is clear that the tax system will likely evolve to support the Government in meeting their ambitious objectives.
Our chartered accountants and business advisers in Hertfordshire, Bedfordshire and Cambridgeshire will continue to monitor developments with interest and we will communicate any changes to tax policy as soon as we become aware of them.
To speak to us about tax incentives that already exist to help you make green choices in business, contact us today.