VAT Provisions for Drink Deposit Return Schemes
Published 15 March 2023
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Who is likely to be affected
Businesses that supply drinks that fall within Drink Deposit Returns Schemes (DRS).
General description of the measure
This measure introduces new VAT accounting rules for businesses making DRS supplies.
A DRS requires a deposit to be charged at each stage of the supply chain. 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 United Kingdom and on any subsequent sales e.g., by wholesalers or retailers. Once the drink has been consumed, if the container is returned, the deposit will be refunded.
This measure makes new statutory provision for VAT accounting for such cases.
The measure
Under existing VAT accounting rules, VAT is chargeable on the price payable for goods and services including any deposit added to the price. In the event that part of the price is refunded to the customer, the VAT is adjusted to ensure that the net amount of VAT paid to HMRC reflects the amount actually paid.
In order to avoid complexity for businesses, this measure will achieve the same result for DRS deposits but by different means. In effect, it removes the need to account for VAT on the value of the deposit when the drink is sold at each stage in the supply chain. Instead, the manufacturer or importer who first sells the product in the United Kingdom will be required to account for VAT on the value of the deposits for DRS containers that have not been returned in exchange for a deposit refund. This will be achieved by a periodic VAT accounting adjustment.
The measure places the obligation to account for the VAT on unreturned containers 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.
Policy objective
The government’s objective is to ensure that the correct amount of VAT is accounted for on DRS drinks, and to simplify the VAT accounting rules for businesses selling drinks that are within the scope of a DRS.
Background to the measure
The government plans to introduce a DRS for bottled and canned drinks. This will require sellers of drinks to add a returnable deposit to the price of in-scope products sold in the UK.
Detailed proposal
Operative date
The measure will be implemented by legislation in Spring Finance Bill 2023 together with detailed accounting regulations to be made by HMRC in a Statutory Instrument which will be laid shortly after the Finance Bill receives Royal Assent. The Statutory Instrument will take effect from 1 August 2023.
Current law
The VAT accounting rules are set out in the Value Added Tax Act 1994 and the Value Added Tax Regulations 1995. However, there is no existing legislation specially covering VAT accounting for DRS deposits.
Proposed revisions
Primary legislation will be introduced in Spring Finance Bill 2023 to make provision for the deposit amount to be disregarded when accounting for supplies of DRS products and for manufacturers and importers to account for VAT only in respect of the in-scope goods sold by them for which deposits are not refunded. Provision will also be introduced in the Bill enabling HMRC to make detailed accounting rules in regulations. These regulations will insert new provision in the VAT Regulations 1995. This secondary legislation will be published for a technical consultation shortly after Spring Budget 2023.
Summary of impacts
Exchequer impact (£m)
| 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 | 2027 to 2028 |
|---|---|---|---|---|---|
| Negligible | Negligible | Negligible | Negligible | Negligible | Negligible |
This measure is expected to have a negligible impact on the Exchequer.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure has no impact on individuals as it only affects businesses. The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
It is not expected that there will be adverse effects on any group sharing protected characteristics.
Impact on business including civil society organisations
This measure will introduce primary legislation to enable secondary legislation under which businesses will not account for VAT on deposit at the time of supply, but certain businesses or civil society organisations can adjust the VAT amount payable on the supply of a drink under the DRS if containers are not returned.
One-off costs will include changes in accounting procedures and familiarisation with the change and could also include upskilling or training staff to understand the change. There will be negligible continuing costs for those businesses required to do scheme adjustments each VAT period.
One-off costs will include changes in accounting procedures and familiarisation with the change and could also include upskilling or training staff to understand the change. There will be negligible continuing costs for those businesses required to do scheme adjustments each VAT period. The administrative burden of most affected businesses is significantly reduced by this measure when compared to the status quo that would have seen them obliged to account for VAT on every deposit charged, even if deposits were later repaid. These changes are intended to ensure that customer experience remains broadly the same, with in-scope businesses and civil society organisations interacting with HMRC as they do now.
Operational impact (£m) (HMRC or other)
HMRC will incur no financial costs to deliver/implement this measure. The relevant guidance will be updated.
Other impacts
This measure will amend tax legislation to support the scheme’s objectives to encourage recycling.
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact Richard Lay on Telephone: 03000 593190 or email: richard.lay@hmrc.gov.uk.