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
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.
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.
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.