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A VAT zero rate will apply to trades in UK emissions trading scheme allowances within the VAT Terminal Markets Order SI 1973/173, said financial secretary to the Treasury Jesse Norman in a written statement in parliament.
A UK emissions trading scheme replaced the UK’s participation in the EU scheme on 1 January 2021. It has been established to increase the climate ambition of the UK’s carbon pricing policy, while mitigating the risk of carbon leakage through free allowances.
The statutory order permits VAT zero rating for transactions on terminal commodity markets to avoid the administrative and cash flow burdens of accounting for VAT and should have no effect on the VAT amount collected at the final stage of consumption. This zero rating will be extended to trades in the UK scheme with effect from when the trades commenced in May 2021.
