VATSC06586 | Consideration: Payments that are not consideration: Payments in specific sectors: Carbon offsetting: Examples of outside the scope activities

Below are some examples of scenarios that we consider to still be outside the scope of VAT. This is not a definitive list of examples, and each case should be considered on its own facts.

Example 1:

A public authority (as defined in VATGPB2310) issues voluntary carbon credits under a special legal regime (see VATGPB3200). This means that they are either obliged by law to perform this activity, or the law permits the activity but requires it to be performed in a way that is different to a private sector provider.

Example 2:

An organisation creates and holds verified carbon credits on a registry. The entity has no intention of trading them and is not engaged in economic activity.

Example 3:

An organisation is responsible for managing a woodland project. The organisation gives donors an idea of how many carbon credits would be created for specific amounts donated. However, the carbon credits are never transferred to the donors. The credits are not used to offset the organisation’s own carbon emissions but are for the good of the environment and in line with the organisation’s objectives. Separately, if the donor receives anything in return for their payment, that might be a taxable supply. See VAT Notice 701/41 Sponsorship

Example 4:

An entity runs a project that is said to create voluntary carbon credits. The entity uses its own methodology to verify the credits and does not engage with any recognised accreditation bodies to confirm the legitimacy of the credits.