Question to the HM Treasury:

To ask the Chancellor of the Exchequer, pursuant to the Answer of 9 April 2025 to Question 43325 on Deposit Return Schemes: VAT, for what reason her Department is considering applying VAT to unredeemed deposits in the deposit return scheme in the context of HMRC expecting the impact on exchequer receipts to be negligible.

The Deposit Returns Scheme (DRS) will launch in the UK in October 2027, introducing mandatory refundable deposits on drinks containers with the aim of increasing recycling.

VAT is a broad-based tax on consumption, and the 20 per cent standard rate applies to most goods and services. VAT is the UK’s third largest tax, forecast to raise £180 billion in 2025/26. Exceptions to the standard rate have always been limited and balanced against affordability considerations.

The previous administration legislated for a simplification to the normal VAT rules so that VAT will only be accounted for on unredeemed deposits rather than on a deposit at the point of sale.

We remain committed to supporting the circular economy through successful implementation of the DRS, and we are keen to ensure that VAT is not a barrier to its effective operation. We are continuing to consider how best to achieve this while maintaining the integrity of the tax and will provide clarity on the VAT treatment of unreturned deposits as soon as possible.