A single-use plastic carrier bag tax was introduced in October 2015 bringing England into line with Scotland, Wales and Northern Ireland.

At a glance

  • On 1 September 2020, HMRC announced a doubling of the levy on single-use plastic bags to 10p following the results of the consultation 'Single-use carrier bags: extending and increasing the charge'. It will apply to all retailers who have over 250 employees.
  • The government will extend and increase of the charge starting April 2021 with the minimum mandatory charge for single-use plastic bags increasing from 5p to 10p. This will apply to all businesses in England that supply goods in single-use carrier bags.
  • From 5 October 2015 large retailers in England must charge a minimum of 5p for single-use carrier bags, bringing them into line with Scotland, Wales and Northern Ireland.
  • A large retailer is one with more than 250 employees.
  • Small and medium-sized retailers with fewer than 250 employees do not have to apply the charge but they can do so voluntarily.
  • The charge is subject to VAT. If a retailer is VAT registered and sells a bag for 5p VAT of 0.83p is paid to HMRC per bag.
  • Businesses are encouraged to donate the profits from the carrier bag charge to charity.
  • Tax relief applies for donations by companies. Tax relief is given via Gift Aid for partnerships or sole traders.
  • Businesses are required to make annual sales reports to the Department for Environmental Foods and Rural Affairs (Defra).
  • There are penalties for failure to make changes, or to keep or supply records.
  • There are exemptions for bags supplied with certain items or goods such as medicines or unwrapped foods.

Overview

Annual Report

Businesses are required to submit annual reports to Defra by 31 May after the end of each reporting period.

The annual reporting period is 7 April to 6 April, with the first reporting period running from 5 October 2015 to 6 April 2016.

The report should contain the following information:

  • The number of single-use carrier bags supplied, excluding exempted bags.
  • The gross proceeds of the charge.
  • The amount of VAT (if any) on the gross proceeds.
  • The amount and analysis of reasonable costs. This would include production cost but not the cost of staff training.
  • The net proceeds of the charge.
  • What the business did with the proceeds.

Donations and tax relief

Businesses may keep the proceeds of bag sales. It is not mandatory to donate the proceeds to good causes. A number of retailers have already pledged to do so.

Companies 

  • Donations made by companies to a registered charity or Community Amateur Sports Club (CASC) are not within Gift Aid relief. A company may receive Corporation Tax relief on any charitable donations it makes as a deduction from its profits provided that:
    • The donation does not come with a condition about repayment.
    • The company or a person 'connected' to the company does not receive a benefit over a certain value in return for the donation.
    • The donation is not subject to a condition or arrangement that the charity will purchase property (other than as a gift) from the company or a connected person.
  • Relief is given after all other reliefs other than by group relief. Donations may only reduce trading profits to nil, excess donations are carried forward.
  • Legislation: Part 6 of CTA 2010, See HMRC: Gifts to charity made by companies.
  • Alternatively, companies could consider sponsoring a charity, for example by paying to use the charity's logo in its advertising material. Such payments can be considered trade-related and included within trading results.

Sole trader or partnerships

  • A donation to a charity or CASC may be made under Gift Aid.
  • Under Gift Aid, the donation is treated as if it has been received by the charity net of basic rate tax.
  • If the taxpayer is a higher rate taxpayer, a Gift Aid donation provides higher rate tax relief.

Gift Aid example

An individual taxpayer makes a donation of £100, the charity can reclaim an additional £25, giving a grossed-up donation of £125.

Where the taxpayer is a 40% taxpayer, £25 (40%-20% x £125) can be reclaimed in tax relief, giving a net donation cost of £75.

Where the taxpayer is a 45% taxpayer, £31.50 (45%-20% x £125) can be reclaimed giving a net donation of £68.50.

Application and exemptions

Carrier bag tax: till operators will have to become tax experts. Extract from an article by accountants Baker Tilly (now RSM):

"From 5 October, England will, like Scotland, Wales and Northern Ireland, charge 5p for the use of plastic carrier bags. Although exempt from VAT in Northern Ireland, carrier bags sold in England, Scotland and Wales generate 0.83 pence in VAT to HMRC.

If the good people of England continue to use plastic bags to the same extent as last year, a staggering 8.3 billion, HMRC would have collected some £70 million in VAT. However, since the introduction of the plastic bag ‘tax’ in Scotland in October 2014, the number of single-use carrier bags has dropped by some 149 million, a reduction of around 80%.

But enough of the ‘tax facts’, what we particularly enjoyed reading was the guidance issued to retailers and shoppers of what is, and what is not, defined as a single-use carrier bag.

A bag is considered as such, and subject to the 5p charge if it has an opening and isn’t sealed and is:

  • Unused - it’s new and hasn’t been used previously for sold goods to be taken away or delivered.
  • Plastic.
  • With handles.
  • 70 microns thick or less.

Which begs the question, what is a bag without an opening?

However, exempt from the charge are plastic bags that are:

  • For uncooked fish and fish products or for uncooked meat, poultry and their products.
  • For unwrapped food for animal or human consumption, for example, chips, or food sold in containers not secure enough to prevent leakage during normal handling.
  • For unwrapped loose seeds, flowers, bulbs, corns, rhizomes (roots, stems and shoots, such as ginger) or goods contaminated by soil (such as potatoes or plants).
  • For unwrapped blades, including axes, knives, and knife and razor blades.
  • For prescription medicine.
  • For live aquatic creatures in water.
  • Woven plastic bags.
  • For goods in transport, such as at an airport or on a train, plane or ship.
  • Considered as sealed packaging for mail order and click-and-collect orders (regardless of handles).
  • Returnable multiple reuse bags (bags for life).
  • Used to give away free promotional material.
  • Used for a service but there’s no sale of goods, such as dry cleaning or shoe repairs.

 To clarify matters, the guidance reads:

"A bag can contain multiple items from this list and not incur a charge. However, if the bag contains other items then, the 5p charge is applicable. For example, there wouldn’t be a charge for a bag containing an unwrapped blade and unwrapped loose seeds, but adding a box of cornflakes means you’d have to pay an additional 5p."

I bet somebody had fun making up that example! And how will the till operators – or self-service checkouts – cope?

The weekly shop is about to get a wee bit more complicated unless you buy a ‘bag for life’."


Our commentary

Unlike Scotland, Wales and Northern Ireland, in England only firms with more than 250 full-time equivalent employees will have to charge for a plastic bag. The big supermarkets will have to charge but independent corner shops will still be able to hand out free bags.

Some smaller shops will make the change as it appears a good way to increase turnover.

Updates

01 September 2020: HMRC announcement on extending and increasing the single-use plastic bag charge starting April 2021. The minimum mandatory charge is increasing from 5p to 10p. This will apply to all businesses in England that supply goods in single-use carrier bags

This guide was updated on 3 November 2015 to include the At a glance, Overview with annual report and donations sections.

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