Environmental tax – how much do you pay? - BLOG by Mike Trotman

By Mike Trotman
mike.trotman@centurionvat.com

My car went in for a long overdue service last week. I usually keep to the required servicing schedule, but the car is now 6 years old and with the various lockdowns over the last few months and the fact that the car has spent a long time just sitting on the drive, I didn’t feel inclined to book it in. Also, in the back of my mind was a niggling thought that this service could be a big one as I haven’t really spent much on the car since new … trust your instincts.

I know the garage owner reasonably well and when he called me to ‘update’ me on progress, there was something in his voice that put me on alert. MOT failed, brake pads failed, brake disks need replacing, 4 new tyres needed and the ash tray was almost full. The bill would be substantial and it ended in two exclamation marks!

In spite of my alarm at the cost, I came over all British and did very little to challenge it. Besides, what do I know about the cost of brake discs, brake fluid, the labour it would take to do the work, the costs of disposing of the old bits and the worn out tyres? Indeed, what did he know about the cost of distributing brake discs, or manufacturing windscreen wipers?

But, when it comes to business, surely understanding how much tax is being incurred – directly or indirectly – is essential, and all FDs would have a handle on that number wouldn’t they?

When the first environmental taxes were introduced, they were often referred to as ‘stealth taxes’ because they were seen as obscure levies that were buried in supply chains and only really understood by the specific sectors that paid them. It’s a label that could be applied equally today even though the business world is more aware of environmental taxes and the critical role they will play in fighting climate change. The fact is, more and more such taxes and levies are being introduced and are likely to be introduced in the coming years, so businesses which are prepared to accept, unchallenged, environmental taxes within their operating costs run the risk of missing out on exemptions and reliefs that they might qualify for and taking a direct hit on their bottom line.

A question I often put to FDs; ‘do you know how much environmental tax your business incurs?’

In the years I have posed this question I don’t think I have ever received a confident answer – the most common response is, ‘I don’t know’, or ‘I have no idea, but it can't be much’ (or you would know about it right?)

Where I have followed up with a review of environmental tax costs, the figure presented to the FD is often met with a gasp and involuntary raising of eyebrows, followed by the question, ‘how can we reduce this’?

As the tax system slowly pivots towards an environmental role (as surely it must) understanding where and how businesses incur these tax costs will become increasingly important. But businesses need to challenge themselves about these costs and establish an environmental tax landscape for their activities before they will have any prospect of securing relief. Also, as many reliefs and exemptions cannot be backdated, the sooner they do so the better.

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