Deposit Return Scheme: letter to HM Treasury February 2023

Factsheet from HM Treasury on accounting for VAT on deposits issued under statutory Deposit Return Schemes (DRS)

The UK Government fully supports the environmental objectives of the Scottish Deposit Return Scheme (DRS) and is committed to ensuring that the DRS functions effectively. The Government want to make it as easy as possible for customers to return their bottles under the scheme and for businesses to redeem their deposits.

This fact sheet sets out how we envisage the VAT rules functioning. This anticipates changes to the VAT rules which will be announced at Spring Budget 2023. However, the UK Government recognises the need for early engagement with participating businesses to ensure that they’re able to begin making the system changes required to comply with scheme rules ahead of the scheme going live on 16 August 2023.

Businesses should use this fact sheet as a guide to assist them in preparing for future legislative changes, rather than as a detailed description of the changes. For a definitive description of future VAT rules, we urge businesses to refer to legislation and detailed guidance that will be published following Spring Budget 2023. Stakeholders will have an opportunity to comment on the effectiveness of new rules when a technical consultation on the required secondary legislation is published at Spring Budget 2023.

HMRC expects the rules to operate as follows:

1. At the point of sale, no business will account for VAT on the deposit amount.

2. VAT will be due only on unredeemed deposits that are associated with unreturned containers.

3. Only the first person in a supply chain (referred to as producers) charging a DRS deposit will have to account for VAT on unredeemed deposits, and only if their supply of the drink was standard rated.

4. No other businesses further along the supply chain, such as wholesalers and retailers, will account for VAT on deposits at any point.

5. Producers will calculate the VAT due on unreturned deposits based on their total DRS sales less DRS returns, in accordance with VAT regulations expected to become law in the early summer.

6. To facilitate this, information on returned products will need to be collected at return points and passed to producers. A producer may contract with a scheme administrator to collect containers and manage deposits who will then provide them with this information.

7. Producers will then use this information to account for the VAT due on unredeemed DRS deposits on their VAT return.

8. If containers are returned in a subsequent VAT period they will be included in the next calculation, so overtime the correct amount of VAT will be accounted for to HMRC.