Synopsis
This Act includes financial policies relevant to the environment.
Updated rates of the climate change levy are set for 1 April 2026 onwards. Increased rates of the landfill tax, plastic packaging tax and aggregates tax are applied from 1 April 2025.
The Act also includes powers to prepare for the introduction of a UK Carbon Border Adjustment Mechanism (UK CBAM) from 2027.
Summary
The Finance Act 2025 includes a range of financial policy relevant to the environment.
This Act applies across the UK, except where stated below.
Oil and gas: Decommissioning of carbon storage installations
Schedule 3 came into force on 21 March 2025. The Schedule sets out rules for the tax treatment of decommissioning funds for carbon storage installations. Certain funds paid in will be treated as decommissioning expenditure with respect to corporation tax, income tax and petroleum revenue tax.
These rules aim to facilitate the transfer of oil and gas company assets to carbon capture and storage companies without the loss of decommissioning expenditure relief.
Business reliefs: Expenditure on zero-emission cars and electric vehicle charging equipment
Amendments to the Capital Allowances Act 2001 extend the 100% first-year enhanced capital allowance for expenditure on zero-emissions cars and electric vehicle charging point plant or machinery. The capital allowances are extended by a single year until 5 April 2026.
Rates of Climate Change Levy
Amendments to the Finance Act 2000 set the main rates of climate change levy from 1 April 2026.
|
Taxable commodity supplied |
Rate at which levy payable if supply is not a reduced-rate supply |
|
Electricity |
£0.00801 per kilowatt hour |
|
Gas supplied by a gas utility or any gas supplied in a gaseous state that is of a kind supplied by a gas utility |
£0.00801 per kilowatt hour |
|
Any petroleum gas, or other gaseous hydrocarbon, supplied in a liquid state |
£0.02175 per kilogram |
|
Any other taxable commodity |
£0.06264 per kilogram |
Landfill Tax (England and Northern Ireland only)
Amendments to the Finance Act 1996 increases rates of landfill tax payable for disposals on or after 1 April 2025:
The increased standard rate also applies to disposals at unauthorised sites in England or Northern Ireland.
Aggregates Levy
Amendments to the Finance Act 2001 increase the aggregates levy on aggregate commercially exploited on or after 1 April 2025. This increases by 5p to £2.08 from £2.03.
Plastic Packaging Tax
Amendments to the Finance Act 2021 increase the rate of plastic packaging tax from 1 April 2025.
The plastic packaging tax increases to £223.69 per tonne from the previous rate of £217.85 per tonne. This will apply to chargeable plastic packaging components produced in the UK or imported into the UK on or after 1 April 2025.
Carbon Border Adjustment Mechanism (CBAM)
The Finance Act 2025 enables HMRC to prepare for the introduction of a UK CBAM. This will apply with respect to embodied emissions on certain types of imported goods and is due to be introduced by 2027.
Government guidance states that the UK CBAM will apply to the aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel sectors.
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