Producer groups warn against tax on DRS deposits

The letter comes after the DRS rollout in Scotland has been delayed indefinitely, which circular economy minister Lorna Slater put partly down to a “lack of clarity” from the UK government on the VAT treatment of deposits (see letsrecycle.com story).

In the letter, the producer groups said that, by applying VAT to deposits, the government is “diverting essential investment in the scheme whilst imposing unnecessarily high costs on the producers and retailers who partake, risking its operational success”.

Normally, beverage containers are not subject to VAT. With VAT applied, a 20p deposit on a £1 beverage will cost £1.23, with the consumer receiving the deposit back.

Deposit

The letter was signed by the Beer and Pub Association, British Retail Consortium, the British Soft Drinks and Food and Drink Associations, the Natural Source Water Association, and the Voice of Local Shops.

The group of six associations warn that this extra cost will hit companies hard.

“With current modelling of the scheme, it is expected that producers will lose over 3 pence per container that goes unredeemed,” the letter says.

It goes on: “Factoring in the estimated 28 billion containers on the UK market, this creates an estimated £184.8 million investment lost from the schemes proposed both for Scotland and separately for England, Wales and Northern Ireland through unredeemed deposits (with an 80% return rate) in the first year after it goes live.”

By proceeding with current plans, the Government risks a stark rise in cost to producers and retailers

• Producer trade associations 

Risks

The letter explained that charging VAT on deposits “diverts money to the UK Government at the expense of the scheme administrator, producers, retailers and consumers”.

Signatories accused the government of “profiting from environmental measures and benefiting financially from one that fails to deliver”.

Doing so would risk penalising consumers for recycling, a “stark rise” in cost to producers and retailers, and undermining the financing model of the DRS, the letter says.

The letter concludes by saying: “It is our view that the deposit in a DRS is not part of the product or a service in itself, but a separate deposit held until redemption. Therefore the consumer would not have ‘gained’ any value from having paid it, neither would retailers, producers or the Deposit Management Organisation.

“We wholeheartedly share the ambition of the Government to ensure the DRS is as successful as possible from day one. For this reason we urge you to, through the upcoming DRS consultation response and Spring Statement, reconsider your application of VAT on deposits to guarantee that funds invested remain within the scheme.”