Chartered Institute of Taxation comments on green tax proposals

27 Oct 2021

The Chartered Institute of Taxation (CIOT) has welcomed the Chancellor’s decision to increase the amount of Air Passenger Duty paid on long-haul flights, but questioned whether the decision to introduce a new lower rate of APD on UK domestic flights is compatible with the UK’s climate ambitions.

Earlier this year, the CIOT called on ministers to reform APD to incentivise the development of greener aviation fuels, linking the tax more closely with the ambitions set out in the government’s green industrial strategy1.

The Chancellor today announced that a new ultra-long haul rate of APD starting at £94 for economy flights of over 5,500 miles and £200 for flights in other classes of travel.

Conversely, the new domestic reduced rate of APD will fall from £13 to £6, and the standard rate from £26 to £13.

The CIOT has also welcomed a number of other environment related tax announcements contained in the Budget, including exemptions from business rates for the installation of onsite renewable energy generation and storage, and a new 100 per cent relief for eligible heat networks. These are aligned with the government’s agenda for the decarbonisation of buildings, as outlined in the ten point plan2.

The CIOT has called for the government to develop a climate change tax policy roadmap. This would assist in developing a more strategic and coherent approach to tax policies that affect the environment3.

Jason Collins, chair of the CIOT’s Climate Change Working Group, said:

Air Passenger Duty:

“While a higher rate of APD for ultra-long haul flights may help to better link the rate of tax paid with emissions produced, the risk of having a lower rate of APD for domestic flights is that it will encourage more consumers to choose air over other modes of transport.

“This, in turn, could lead to more carbon emissions being generated and could put the UK’s net zero targets at risk, though we note that £180 million has been earmarked to start the development of commercial-scale UK sustainable aviation fuel plants, which may form part of the decarbonisation strategy for the aviation sector.

“From a tax administration perspective, creating a separate band for domestic flights is a relatively straightforward approach.

“But reducing the amount of tax that is being paid appears to overlook both the impact that domestic flights have on carbon emissions and the fact that in many cases there are alternatives modes of transport available, like rail, which generate lower carbon emissions”.

On the introduction of Business Rate discounts for renewable energy developments:

“These reliefs will help incentivise businesses to invest in green energy technologies, but there is a risk that companies already in the process of doing this may now decide to put their investment plans on hold for 18 months in order to take advantage of the scheme.”

Notes for editors

  1. Read the CIOT’s response to the consultation here.
  2. See Ten Point Plan for a Green Industrial Revolution (UK Government, November 2020)
  3. Tax professionals set out case for a climate change tax roadmap (CIOT news release, 21 October 2021)