VAT and Deposit Return Schemes

The measure

Deposit Return Schemes (DRS) require a deposit to be charged at each stage of the supply chain.

Under the proposals for a DRS in respect of single-use drinks containers, the deposit would be added to the price of the goods by the person (such as a manufacturer or importer) who first sells a DRS drink in the UK and on any subsequent sales.

The government is to legislate to simplify the VAT treatment of deposits charged under a DRS for drinks containers. This will ensure that, where a deposit is charged on a drink that is within the scope of a DRS and the container is returned to a return point for recycling, VAT will not be applied to the deposit amount.

Where the container is not returned for recycling, HMRC will collect the VAT on the unredeemed deposit on the manufacturer or importer. These businesses receive the deposit amount when they first sell the drink, and they are normally the persons, who are obliged, under the DRS, to ensure that deposits are refunded to consumers in exchange for used containers.

Who will be affected?

Businesses that supply drinks that fall within Drink DRSs.

Under the Scottish Deposit Return Scheme, which is currently the only UK DRS were there has been any published information, the first person in the supply chain (referred to as the Producer) charging a deposit will be required to account for VAT on unredeemed deposits, provided the supply of the drink was subject to the standard rate of VAT.

When will the measure come into effect?

The Scottish Deposit Return Scheme is due to commence on 16 August 2023, with it being anticipated that similar schemes will be introduced in the UK at a later date.