Deposit return scheme to carry £300m ‘tax hit’ on prices

The government risks adding a £300m “tax hit” to the cost of drinks products under the implementation of the UK’s deposit return scheme (DRS), MPs have been told.

Soft drinks bosses claim the success of the scheme, due to be launched in October 2027, is being “jeopardised” by the prospect of VAT charges being made on unredeemed deposits on the return scheme.

They have called on the government to think again, warning the tax plans will ramp up the costs to producers and inevitably have a big knock-on impact on consumers.

The claims have been made in the British Soft Drinks Association’s (BSDA) written response to the Efra Committee’s inquiry on the circular economy and the Global Plastics Treaty.

Whilst the BSDA praises the government’s role in laying the foundation for the DRS rollout in 2027, it says unless the Treasury backs down, huge unnecessary costs will be added to the system.

“In response to a recent parliamentary question from Euan Stainbank MP, the Exchequer secretary confirmed that HMRC expects the impact of the application of VAT on unredeemed deposits “on Exchequer receipts to be negligible”, says the response.

“The proposal would therefore deliver no material benefit to the Treasury, while removing an estimated £250m annually from the scheme. This represents crucial funding that could instead be reinvested to expand return infrastructure, raise public awareness, and improve scheme performance.”

A BSDA spokesman told The Grocer: “The BSDA – along with the wider UK drinks industry and retail sector – believes DRS deposits should not be subject to VAT and neither should the deposit be ‘hidden’ within the product price.

“We fail to see the logic in taxing consumers for doing the right thing and therefore we strongly urge HMRC to confirm the VAT-exempt status of deposits within the UK’s DRS. The Treasury has even stated on record that should VAT be applied to unreturned deposits for the DRS, it will raise next to nothing in revenue. We are urgently seeking a remedy to a situation in which there are no winners.”