Revenue and Customs Brief 14 (2015): VAT - compulsory charge on single-use carrier bags in England
Published 17 August 2015
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Purpose
A compulsory charge on carrier bags is to be introduced in England. This is not an HM Revenue and Customs measure. However, there are implications for VAT, Corporation Tax and Income Tax.
This brief explains the basics of the charge and the tax implications.
Who needs to read this?
Suppliers with 250 or more full-time equivalent employees which provide single-use carrier bags when selling goods in England or which provide such bags when selling goods for delivery in England.
Background
Parliament has introduced a compulsory charge on single-use carrier bags provided with goods supplied in or to England. The legislation takes effect from 5 October 2015. Compulsory charges for such bags already exist in the rest of the UK.
The charge is set at a minimum of 5 pence. It will apply on single-use carrier bags supplied with goods which are supplied in or delivered to a person in England by suppliers with more than 250 full-time equivalent employees.
VAT implications
Whether or not a VAT registered supplier comes within the scope of the compulsory charge, any amount charged for a bag is tax inclusive at the standard rate of VAT. For example, where a VAT registered business charges 5 pence, the taxable amount will be 4.17 pence and the VAT 0.83 pence.
Suppliers using a retail scheme should ensure that VAT is properly accounted through their scheme.
Direct tax implications
For Corporation Tax and Income Tax, receipts from the compulsory charge on single-use carrier bags should be brought into account in calculating trading profits.
The government expects the proceeds to fund good causes in England. Relief may be available where the normal charitable donations/gift aid rules are met.
Further information
Information about how the charge will operate is available at Charges for single-use plastic carrier bags.