Consumers will face a VAT ’double whammy’ with the rollout of Deposit Return Schemes (DRS) across the UK.
This week the Scottish Government confirmed it had been told by No. 11 that the tax would apply on top of the 20p deposits on products under the scheme, despite firms warning it could cost them tens of millions and push up the prices of drinks to hard-pressed consumers already facing a spike in inflation.
Meanwhile there was also disappointment for businesses hoping for a delay in the launch of the UK’s first DRS scheme in Scotland, amid concerns over what they claim is the “impossible” timeframe.
There had been widespread speculation that the Scottish Government would announce a delay of the scheme, due to launch in July 2022, after it launched a review into the financial and logistical impact caused by Covid.
However, Lorna Slater, the minister of green skills, circular economy and biodiversity, surprised sources by failing to confirm a new date as a result of the review, amid speculation the Scottish Government may be planning to press ahead with the scheme in some form, possibly with the launch of trial areas or with trial supermarket partners, to hit its start date.
The minister said the scheme would begin “as soon as practically possible”, adding: “The global pandemic and Brexit had a major impact on businesses, particularly retailers and those involved in their supply chains.”
Slater, however, did confirm she had been informed by the Treasury that when DRS did launch, VAT would apply to deposits in what is being seen as a crushing blow to the scheme, saying there was “no route” to removing VAT from deposits.
In June, The Grocer revealed how business leaders had written to the government to say unless the Treasury granted VAT exemptions for tens of thousands of SKUs in its scope, it could costs companies tens of millions, with DRS due to launch in England in 2024.
They warned slapping VAT on top of the 20p deposits planned in Scotland (the figure is yet to be revealed in England) risked leading to higher prices for cash-strapped consumers.
FDF Scotland CEO David Thomson said the Treasury’s decision would mean DRS was “confusing and costly” for consumers.
He added that the refusal so far to confirm a delay of the rollout in Scotland meant businesses faced “huge uncertainty” ahead of next summer’s start date.
“It’s very important that we get clarity over a sensible start date to allow businesses to start planning. It had been widely expected that the date was going to be delayed, probably until autumn 2023.
“This means businesses still face damaging uncertainty over whether the government will still seek to start next summer.”
Ewan MacDonald-Russell, Scottish Retail Consortium head of policy, added: “It’s six months after government commissioned a gateway review into the Scottish deposit return scheme, and retailers – who are absolutely critical to its successful implementation – are little wiser on when stores must be ready to take back containers.
“Retailers will raise a weary eyebrow that after this long-postponed announcement there will be a further delay until they receive clarity and visibility on the launch of the scheme. This process has been drawn out to a pretty farcical degree – and needs to be urgently resolved. A new go-live date, no earlier than 2023, needs to be confirmed swiftly.”
He added: “Nonetheless, the likelihood of a delay will be welcome news. Whilst retailers have already made significant investment to prepare for the scheme, there was no realistic chance they could accommodate the impact of the Covid pandemic without impact, never mind the further challenges presented by the EU exit and the UK government’s decision to apply VAT to the 20p deposit that customers will face. With no realistic chance of the scheme being successfully launched next year, the Scottish Government needs to announce a new go-live date that will allow retailers to focus their efforts on delivering an ambitious, world class deposit return scheme.”
The British Soft Drinks Association said; ”“While we support the Scottish Government’s decision to try and find a more pragmatic start date for Scotland’s deposit return scheme (DRS), it is important that the new go-live date is confirmed as soon as possible, particularly given the scale of disruption already faced by businesses and consumers over the past 18 months.
“We also urge the UK Government to address the issue of applying VAT to the deposits in Scotland’s DRS. Keeping this mechanism in place would effectively tax the incentive that’s there to encourage good consumer behaviour as well as bringing a huge cost and a great deal of complexity to producers.”
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