Scottish Deposit Return Scheme

The Scottish Deposit Return Scheme (DRS) is an environmentally ambitious scheme for single-use drinks containers. It will now not be introduced until October 2025, at the earliest.

This is a freeview 'At a glance' guide to the Scottish Deposit Return Scheme.

• The scheme will involve a payment of a 20p deposit when a drink is bought that comes in a single-use container made of PET plastic, steel, aluminium or glass. The deposit will be repaid when the empty container is returned to a return point.
• The scheme, which was meant to go live in July 2022, was postponed until 16 August 2023 due to the pandemic. It was then delayed until 1 March 2024 to allow manufacturers and retailers more time to prepare.
• In June 2023, it was announced that the launch of the scheme would be delayed until at least October 2025 as a consequence of the UK Government’s refusal to agree a full exclusion from the Internal Market Act.

HMRC published guidance as to how VAT will impact the scheme in advance of the legislation being introduced as part of the Spring Budget 2023.

Finance (No. 2) Act 2023 subsequently introduced sections 55B, 55C and 55D to VATA 1994, to deal with Deposit Schemes and ensure that no VAT is charged at any point in the supply chain in relation to the deposit element of the price for a deposit scheme product.

The rules for how and when the VAT liability of suppliers who make the first sale of standard rated deposit scheme products that include an unredeemed deposit amount is to be calculated and accounted for will be set out in subsequent regulations. 

The rules are intended to operate as follows:

• At the point of sale, there will be no VAT to be charged on the deposit.
• VAT will only be due in relation to deposits not repaid as a result of the container not being returned.
• The charging of VAT will only apply to the first person in the supply chain, or the 'producer' and then only if the supply of the drink by that business was standard rated.
• No other business in the supply chain will need to account for VAT in relation to the deposit.
• The value of unredeemed deposits will be calculated as 'total DRS sales less total DRS returns'.
• In order to amass this information, it is expected that information on returned containers will need to be collected at the return points. It is anticipated that producers will need to contract with scheme administrators to manage this process.

Useful guides on this topic

Time of supply (Tax Point)
The time of supply of goods or services determines the date on which VAT becomes due. There are a number of different rules which must be considered. 

Place of supply: Goods
The place of supply (POS) of goods determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

External links

Scotland's deposit return scheme

HMRC Factsheet: How VAT will be applied to the Deposit Return Scheme

Scottish Government: Scottish scheme delayed until October 2025 at the earliest

Finance (No. 2) Act 2023 section 315, Deposit schemes