What are green taxes?

With the UK's annual Recycle Week kicking off on 19 September 2022, it's a good time to look at your business processes and review which green taxes you have to pay, as well as other environmental policy instruments that need to be applied.

Such taxes are imposed on various manufacturing and output processes, although not all businesses have to pay the same taxes. The environmental tax revenue from these types of taxes peaked at £52.6 billion in 2019, although it dropped to £45.7 billion in 2021. These figures show that many companies are now making greener decisions that are helping to reduce their taxes and combat climate change.

In this guide, we'll look at the various green taxes that have been implemented to encourage UK businesses to operate in a sustainable and eco-friendly way. The taxes and schemes that your business is subject to will depend upon the type and size of your company.

Your company must pay the Climate Change Levy (CCL) if it is in any of the following sectors:

• agricultural
• commercial
• industrial
• public services

The Climate Change Levy is paid at the main rate or the carbon price support (CPS) rates. You must pay the main rates for electricity, gas and solid fuels. This includes fuels such as coal, lignite, coke and petroleum coke. The CCL main rates that you need to pay should be listed on the energy bills that your company receives.

The table below shows the main rates that business energy suppliers should charge on the various taxable commodities:

Electricity, gas and solid fuels are usually exempt from the main rates for this levy in the following circumstances:

• the company isn't based in the UK
• they will not be used as fuel
• they’re supplied to or from certain combined heat and power (CHP) schemes
• the fuels are used to produce electricity in stations that have a capacity of 2MW or greater
• the electricity was generated before 1 August 2015 using renewable sources

Energy-intensive businesses can pay the following reductions on CCL main rates if they have entered into climate change agreements with the Environment Agency:

• 92% reduction for electricity
• 86% reduction for gas
• 77% reduction for liquefied petroleum gas (LPG)
• 86% reduction for coal and other solid fossil fuels

You also do not have to pay the main rate for the levy on some supplies if your business only uses a small amount of energy, you are a domestic energy user, or it is a charitable organisation that is involved in non-commercial activities.

This is a tax that businesses must pay in addition to the standard landfill fees. You will be charged this tax if you discard rubbish at sites that are not authorised for landfill. Your company may also face a penalty or be taken to court. This type of tax is based on the weight of what you are discarding. The two types of tax and rate are listed below. The lower rate applies to inactive waste, which applies to materials such as soil and rocks.

You do not have to pay Landfill Tax if any of the following applies to your company:

• dredging activities
• quarrying and mining
• pet cemeteries
• inactive waste used for filling quarries

Your company may also be eligible for tax credits if you recycle, incinerate or reuse the waste instead of sending it to a landfill site.

Since the tax was introduced in 1996, landfill decreased from 35.7 million tonnes in 1995 to 7.7 million tonnes in 2016. The revenue generated from this particular tax made the largest contribution (£0.9 billion in revenue) to pollution and resource tax revenue in the following year.

The Aggregates Levy applies to materials such as sand, rocks and gravel that have been dug from the ground, dredged from UK waters or imported. If any of these apply and your business exploits aggregate within the UK, you must register with HMRC. Your company must issue quarterly updates to HMRC to let them know how much aggregate you've sold or produced.

Your company must pay £2 tax per tonne on the previously mentioned materials. The tax is lower for smaller amounts (such as £1 for half a tonne).

Some materials are eligible for tax relief if the aggregates are exported or used for agricultural or industrial processes. the materials are also eligible for tax relief if they are not used for aggregates. Other materials that are excluded from the tax include soil, vegetables or other types of organic matter.

Finished plastic packaging components that contain less than 30% recycled plastic are subject to Plastic Packaging Tax. The packaging must be suitable for moving goods from the manufacturer to the consumer or if it is designed for single use by the consumer.

Your company must be registered with HMRC if either of the following applies:

• you think you will manufacture or import a minimum of 10 tonnes of finished plastic packaging within the next 30 days
• you have manufactured or imported 10 tonnes or more of finished plastic packaging components since 1 April 2022

If either of the previous factors applies, your company must pay £200 per tonne of finished plastic packaging that contains less than 30% of recycled plastic. However, you can get tax relief if you export the previously mentioned plastic packaging.

Some packaging is exempt from Plastic Packaging Tax because of its intended use. Below are the four types of plastic packaging that have this green tax exemption:

• used to transport multiple goods into the UK
• used for strong goods in aircraft, ships and rails
• used for packaging human medicine
• recorded that it has been set aside for non-packaging use (such as plastic film on a whiteboard)

You must include the last two points when you calculate the total weight of packaging that your company has imported or manufactured when you are working out the 10-tonne registration weight.

Plastic packaging that is manufactured for immediate packaging of licensed human medicine is exempt from the tax. Immediate packaging is classed as a container that comes into contact with the medicine as soon as it has been produced.

The following types of packaging are also exempt from the tax. They do not need to be included when calculating the total weight for the 10-tonne registration.

• used in the long-term storage of goods (such as toolboxes and earbud cases)
• an integral part of the goods (such as inhalers and ink cartridges)
• reused for the presentation of goods (such as shop fittings and display shelves)

The European Union Emissions Trading System (EU ETS) applies to businesses that work within energy-intensive sectors. The Emissions Trading system allows you to buy and sell greenhouse emission allowances to help reduce the environmental impact of your company.

If your business is involved in this scheme, you must meet the set targets to cut your business emissions and meet your trade emissions targets. You will also have to open an EU Registry account so that you can trade emission allowances. they can be directly traded with other businesses using the services of a broker or bought and sold through intermediaries (such as banks). They can also be bid at the UK government or at other EU member state auctions.

To calculate how many greenhouse gas emissions your business produces, you need to multiply the amount of energy you use by how many emissions they produce. This will need to be repeated for each type of greenhouse gas, for things such as carbon emissions from carbon dioxide.

You will need to know how much non-renewable energy your company has used. This information can be found on invoices and receipts for your gas, electricity and water. You also need to know how much greenhouse gas is produced by each energy type. These figures are updated every year by the Intergovernmental Panel on Climate Change (IPPC).

There are online calculators that you can use to help you calculate how many greenhouse emissions your company produces based on the type of work that your business does. For example, the Carbon Trust offers a calculator that helps small and medium businesses work out how much carbon they produce.

Certain companies are legally required to report their global energy use and greenhouse emissions in the annual Director's Report. This applies to UK companies listed on the London Stock Exchange's main market, a European Economic Area market, or who have shares listed on the New York Stock Exchange.

Large incorporated companies in the UK that are required to prepare a Directors’ Report under Part 15 of the Companies Act 2006 must also file the emissions and energy use in the Director's Report. The UK government also encourages all other companies to do the same, although this is a voluntary action.

It's helpful to identify how much greenhouse gases your business produces as it can help you to implement more efficient practices. You can identify areas that use a lot of resources and energy and work out ways to make your business activities sustainable, and add energy-efficient technology to your manufacturing processes. You may also find that this reduces taxes such as the Landfill Tax, as you won't have as much waste.

If you cut back on resources and energy expenses, you may be able to reduce your overall costs, which could make your prices more competitive and attract new customers. It's also beneficial to understand the impact that your business is having on the local and international environment and help to reduce climate change.

Green taxes are a series of environmental taxes that have been implemented by the government to try and encourage businesses to review their manufacturing and waste processes to reduce their greenhouse gas emissions and waste. The Climate Change levy is an environmental tax that companies in the industrial, commercial, agricultural and public service sectors have to pay for the use of electricity and gas, amongst other taxable commodities.

Not all companies are legally required to pay environmental taxation. For example, your business won't have to pay Plastic Packaging Tax if your packaging uses over 30% of recycled plastic or if it is intended for specialised use. Another type of green tax is the Landfill Tax, which you must pay based on how much waste you are disposing of. The same principle applies to the Aggregates Levy, as you pay based on how many tonnes you are importing, dredging or have dug from British ground.

It can be helpful to calculate the greenhouse gas emissions that your company produces as it can help you review where you need to practice more sustainable processes, which in turn can reduce your energy uses and waste. Some companies are also legally required to include their energy and greenhouse gas emissions in their Director's Report. The UK government encourages all companies to do the same, although this is optional.