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The Value Added Tax (VAT) row is bad news for the drinks containers deposit return scheme (DRS) roll-out in Scotland.
A dispute over VAT liability has halted DRS in Scotland and will endanger the launch of similar schemes in Northern Ireland and Wales. UK Treasury and HMRC officials are insisting that VAT is imposed on the deposit element of any drink’s price, although food and drink itself is normally zero rated, they say deposits are not.
If, for example, a can of drink costs £1.00, then under DRS a consumer might pay an extra 20 pence for the deposit. However, UK Chancellor Sunak’s officials are demanding that, in this example, a further 4 pence of VAT is charged on the deposit.
That would make £1.24 in all and the purchaser would only get 20 pence back when they returned the drinks can to redeem their deposit. Not only does that increase the cost of products, but it also means the retailer has to spend time to account for the VAT and both are bad news for the DRS scheme.
This VAT dispute lies in decisions made by UK Chancellor Rishi Sunak rather than the Scottish Government. Scotland’s Circular Economy Minister, Lorna Slater MSP, has said the DRS will be indefinitely postponed. It would seem until Sunak relents and makes VAT on deposits zero rated.
Contrary to the claims of Unionist politicians and press, this DRS mess is of the UK Government’s making.
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