Policy paper

VAT provisions for drink Deposit Return Schemes

Published 13 July 2026

Who is likely to be affected 

Businesses that supply drinks products that fall within the scope of drink deposit schemes or are involved in the administration of such schemes. 

General description of the measure 

This measure introduces new VAT accounting rules for supplies made under drinks deposit schemes. 

There are 3 national drinks deposit schemes established in the United Kingdom: one for England and Northern Ireland, one for Scotland and one for Wales.  

Under current legislation for VAT accounting in respect of drinks deposit schemes, the deposit amount is disregarded for the purpose of determining the value of supplies of scheme products. This means that VAT is not accounted for in respect of the deposit element of the price at the point of sale by suppliers of such products. Instead, manufacturers or importers who make the first supplies of the products in the UK are required to account for VAT on deposits that are not refunded as a result of the containers not being returned. 

This new measure introduces a different approach which is designed to simplify VAT accounting with the scheme administrator for each scheme — the body with statutory responsibility for operating the scheme — required to account for VAT on deposits that are not refunded. 

As a result, businesses in the supply chain will no longer need to account for VAT on the deposit element of the price at each stage. Instead, the VAT liability on unrefunded deposits will rest centrally with the scheme administrator. 

Policy objective 

The objective of this measure is to make sure that the correct amount of VAT is accounted for on deposit scheme drinks, and to simplify the VAT accounting rules for businesses selling drinks that are within the scope of a deposit scheme. 

Background to the measure 

The UK government and the Scottish and Welsh Ministers plan to introduce deposit schemes for bottled and canned drinks in Autumn 2027. This will require sellers of drinks to add a returnable deposit to the price of in-scope products sold in the UK. 

Primary legislation setting out the VAT treatment for the scheme was first introduced in the Finance (No. 2) Act 2023. This provision inserted the current sections 55B to 55D in the Value Added Tax Act 1994. 

Further legislation will be introduced in Finance Bill 2026-27 to provide the revised framework for the VAT treatment of deposits in advance of the expected implementation of the three national schemes in Autumn 2027.

Detailed proposal 

Operative date 

The measure will be introduced in Finance Bill 2026-27 together with detailed accounting regulations to be made by HMRC in a Statutory Instrument which will be made after the Finance Bill receives Royal Assent. The provisions will take effect from the commencement of the deposit schemes. These are expected to start in Autumn 2027. 

Current law 

The current VAT accounting rules for deposit schemes are set out in sections 55B to 55D of the Value Added Tax Act 1994. 

There is no secondary legislation covering the VAT treatment of these schemes at present. 

Proposed revisions 

Primary legislation will be introduced in Finance Bill 2026-27 to make provision for the scheme administrator of each scheme (rather than the manufacturers and importers of drinks) to account for VAT in respect of deposits that are not refunded.  

Provision will also be introduced in the Bill enabling HMRC to make detailed accounting rules in regulations. These regulations will insert new provision in the VAT Regulations 1995. 

Summary of impacts 

Exchequer impact (£ million) 

2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
nil	nil	nil	nil	nil	nil

This measure is not expected have an Exchequer impact. 

Economic impact 

This measure is not expected to have any significant macroeconomic impacts. 

Impact on individuals, households and families 

There is no impact on individuals as this measure only affects businesses. 

Equalities impacts 

This measure only affects businesses, therefore it is not anticipated that there will be disproportionate impacts on any protected groups. 

Administrative impact on business including civil society organisations 

This measure will have negligible impact on an estimated 40,000 to 50,000 businesses who will need to familiarise themselves with the correct VAT position to code the VAT deposit correctly in their records. 

The scheme administrator being responsible for accounting for VAT on unrefunded deposits is expected to have a positive impact on businesses manufacturing or importing Drink Deposit Schemes (DRS) drinks as it will reduce their administration costs. The scheme administrator’s ongoing costs associated with its VAT accounting will be negligible. 

This measure is expected to improve businesses’ experience of dealing with HMRC when compared to requirements under the existing legislation as it simplifies the process. 

This measure is not expected to disproportionately impact civil society organisations. 

Operational impact (£ million) (HMRC or other) 

HMRC will not incur any costs implementing this change.

Other impacts 

This measure will amend tax legislation to support the scheme’s objectives to encourage recycling. 

Other impacts have been considered, and none have been identified. 

Monitoring and evaluation 

The measure will be kept under review through communication with affected taxpayer groups. 

Further advice 

If you have any questions about this change, contact Mark Whittington by email mark.whittington@hmrc.gov.uk .