Taxation of BNG offsets – a rant

Sleeping Tiger by Michael Green on Unsplash

I am starting to get a lot of enquiries about how income and expenditure for the various ecosystem service offsets are taxed. In this short piece I am going to restrict myself to Biodiversity Net Gain (BNG) introduced by the Environment Act 2021.

Biodiversity Net Gain was formally introduced to us in the Environment Bill which was laid before Parliament in January 2020, more than 4 years ago, but anyone who was awake would already have known this was coming as the direction of travel had been clearly signposted, not least in Gove’s 25 year plan. HMRC have therefore had a lot of time to get to grips with how it works and to establish the tax treatment of the various payments under the scheme.

I was pleased that they finally woke up to it in March 2023 when the consultation was launched after 3 years of sleeping, so I was excited to hear their thoughts. But the responses that HMRC give in their recent update on this have made me fall off my chair.

After a whole year of thinking about this all they can say can be summed up in the following two extracts, first from paragraph 2.6

The absence of accounting standards was raised as a key issue, given its potential implications on tax reporting.

Now from paragraph 2.7

There was a consensus amongst respondents that HMRC should issue guidance, including worked examples, to provide clarity on the tax treatment of the production and sale of ecosystem service units.

So..why not issue guidance? HMRC have now been sleeping on this for more than 4 years and I think we deserve better. I have clients who are making large scale investments without knowing the tax treatment of money being spent, and this is a massive failure of policy. This is a government supported investment and taxpayers are entitled to know how the various components are taxed.

HMRC are slow to provide help and advice, witness the difficulty in trying to talk to them, but very quick to charge penalties on hapless taxpayers confused about our labyrinthine tax system – hence the rather beautiful picture of the sleeping tiger above.

Rant over, for now…


A green future: Our 25 Year Plan to Improve the Environment

HMRC consultation on ecosystem markets