The Treasury has confirmed that VAT will not be applied to redeemed deposits as part of the Scottish deposit return scheme (DRS) in a letter sent to Circular Economy Minister Lorna Slater and published on the Scottish government’s website.
Slater’s letter was written in response to a letter from Financial Secretary to the Treasury, Victoria Atkins MP on the application of VAT in relation to Scotland’s DRS.
The Circular Economy Minister said in her letter that Atkins confirmed: “wherever a container is returned for recycling, and the corresponding deposit is redeemed, VAT will not be applied to the deposit amount but VAT will be due on deposits that have not been redeemed, with the liability falling on the producer who originally issued it.”
In a previous letter, Slater said the Scottish government is working closely with the UK Government to provide clarity on the issue of how VAT will be applied to deposits.
The development also follows a UK minister speaking to the Scottish Mail on Sunday saying the DRS should be “paused” following business leaders raising concerns over the costs involved in setting up the scheme.
VAT will not be applied to the deposit amount but VAT will be due on deposits that have not been redeemed.
Responding in her letter, Slater said she “welcomes the decision which will give businesses the long-needed clarity they have been asking for in order to prepare for the launch of Scotland’s DRS in August.”
Slater also confirmed that information will be published on the Scottish Government’s website and she understands that the UK government will formally announce the changes, including further details, in the spring budget.
The letter was published on the Scottish government’s website alongside a “factsheet” from the Treasury on accounting for VAT on DRS deposits.
It states that the HMRC expects the rules to include that, at the point of sale, no business will account for VAT on the deposit amount and VAT will only be due on unredeemed deposits that are associated with unreturned containers.
The factsheet continues that “only 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.”
