Connect – Carrier Bag Charge

Carrier Bag Charge Scotland

From the 20 October 2014, legislation passed by the Scottish Government requires all retailers to make a minimum 5 pence charge for each new ‘single use carrier bag’ given to their customers.  The aim is to encourage bag re-use and reduce the visible impact of litter.  The net proceeds of the charge belong to the business; however the Scottish Government is keen to see the receipts donated to good causes.

Sounds straightforward – but here is the ‘small print’

What is a ‘single use carrier bag’?

A single use carrier bag is one which is;

  • intended to be used only once, to carry away goods from the point of sale. They can be made of plastic, paper or some plant-based materials. The bag is considered to be of single use if any of the following apply
    • It is made of thin plastic (any part of the bag has a thickness of no more than 49 microns); or
    • It is less than 439mm x 404mm when laid flat (excluding the handles). Or
  • made wholly or mainly from paper, plant based material (other than cotton, flax, hemp, jute or sisal), unless the bag is a multi-use bag which is:
    • Purchased by the customer;
    • Returnable to the retailer from whom it was purchased to be replaced free of charge when it is worn out; (the so-called ‘Bag for Life’)
    • Clearly marked that it can be returned and replaced in this way.

The Exceptions

  • Bags of any size used solely to contain specified items, such as
  • Bags of any size used solely to contain specified items, such as
    • Unpacked food for human or animal consumption such as fruit and veg, pick and mix sweets and dry animal food
    • Unpackaged goods contaminated by soil such as potted plants
    • Certain medicinal products such as those fulfilling prescriptions
  • Small bags that can always be provided free of charge
    • Small paper bags, no greater than 175mm x 260mm, without a handle and/or a gusset, of the sort used for greetings cards
    • Small paper bags, no greater than 155mm x 80mm, without a handle but with a gusset of no more than 50mm. Typically the type used for pick and mix, and prescriptions
    • Small flat plastic bags, no greater than 125mm x 125mm, without a handle. Typically used for small hardware items or haberdashery.
  • Specialist bags such as mail order or courier bags for delivery of goods, bags used for the transport of live aquatic animals, liners used to cover boxes or crates.
  • Bags used to contain items purchased in airports and on board vehicles, vessels and aircraft.
  • If a customer has not purchased goods from you – for example distributing free promotional materials, literature or when providing a service e.g. collecting clothes that have been repaired or cleaned.
  • Other types of product that might be used to carry or package goods such as boxes, buckets, sealed plastic packaging or envelopes.

What about VAT?

The minimum charge of 5 pence is to be treated as a VAT inclusive amount. The net amount per bag is therefore 4.17 pence and the VAT to be declared to HMRC is 0.83 pence. This applies to all VAT registered businesses liable to charge VAT.

It is important that carrier bag sales are processed through the sales system/cash register in order that they are picked up on the VAT return correctly.  Suppliers using a VAT Retail Scheme should ensure that VAT is properly accounted through their scheme.

Non-VAT Registered businesses will still be required to charge the same minimum amount of 5 pence.

What about Direct Taxes?

Income from the compulsory charge should be brought to account when calculating trading profits for both Corporation Tax and Income Tax, which means that direct tax may become payable on the charge. Tax relief may be available if, as the Scottish Government hopes, the income is donated to charity.

For Corporation Tax, companies can make a claim in their Company Tax Return to deduct their charitable donation from taxable profits, as long as the donation is a payment of money and meets all the qualifying conditions. A claim for deduction on charitable donations cannot be used to create a loss position when calculating taxable profits.

For Individuals and Partnerships, you can take advantage of the relief available on gifts of money to charities and claim them on your self-assessment tax return. The charity can then also reclaim basic rate tax on your donation using the Gift Aid scheme.

Do I have to keep records?

Yes – if your business employs 10 or more members of staff at the beginning of a reporting year then you have a requirement to keep, retain and produce a record of information about the single use carrier bags supplied and the money received as a result of having to charge for bags. The requirement applies even if the number of staff you employ falls below that threshold in the course of the year.

A template of the details required is at;

If you have any questions, please contact your usual Henderson Loggie contact, Chris Scott or any of the key contacts in the Tax team.