The VAT treatment of voluntary carbon credits is changing in the UK from September 2024. If you create, buy or sell voluntary carbon credits, here is what you need to know.

HMRC has published new guidance on an upcoming change to the VAT treatment of voluntary carbon credits that comes into force on 1st September 2024. Following this date, you will need to pay VAT on the sale of any voluntary carbon credits at the standard rate (20%).  

Currently, voluntary carbon credits are treated as outside the scope of UK VAT. Certain activities will remain outside the scope after September:

  • The first issue of the voluntary carbon credit from the government 
  • Holding onto voluntary carbon credits for investment purposes rather than actively trading them 
  • Donating to support projects that create voluntary carbon credits 
  • Selling voluntary carbon credits from your own projects if they have not been independently verified.

If you trade voluntary carbon credits on terminal markets classified under the terms of the VAT (Terminal Markets) Order, SI 1973/173, these credits will be taxable but at a rate of 0%. 

VAT treatment of Biodiversity Net Gain (BNG)

If you are planning to create or sell biodiversity units on your land in order to capitalise on the recently launched BNG initiative, it is important to be aware that HMRC has not yet confirmed whether the sale of BNG units will be subject to VAT (although DEFRA have stated that they are subject to VAT, therefore it is highly likely). We strongly advise that you seek advice from a tax specialist before starting any transaction to buy or sell BNG units.   

You can find out more about the tax implications surrounding the BNG scheme in our recent article, Understanding the Biodiversity Net Gain (BNG) initiative and tax implications for farmers and landowners. 

For more information on the tax treatment of voluntary carbon credits and Biodiversity Net Gain, contact us to speak to one of our Personal Tax or VAT experts about your individual circumstances.