Carrier Bag Tax

• From 5 October 2015, large retailers in England were obliged to charge a minimum of 5p for single-use carrier bags, bringing them into line with Scotland, Wales and Northern Ireland.
  
  • A large retailer was one with more than 250 employees.
  • Small and medium-sized retailers with fewer than 250 employees did not have to apply the charge but could do so voluntarily.
• From 21 May 2021, the single-use carrier bag charge increased from 5p to 10p. 
  • The charge was also extended to all businesses in England, regardless of their size. 
  • This follows the consultation 'Single-use carrier bags: extending and increasing the charge'. 
• The charge is subject to VAT.
  • If a retailer is VAT registered and sells a bag for 10p, VAT of 1.67p is paid to HMRC.
• Businesses are encouraged to donate the profits from the carrier bag charge to charity.
• Tax relief applies to donations by companies. Tax relief is given via Gift Aid for partnerships or sole traders.
• Large businesses with more than 250 employees 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.

Annual Report

Large retailers with over 250 employees 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.
• The first reporting period ran from 5 October 2015 to 6 April 2016.
• Small or medium businesses have the opportunity to voluntarily submit records.

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 costs but not the cost of staff training.
• The net proceeds of the charge.
• What the business did with the proceeds.

Records must be kept for three years from 31 May in the following reporting year. For example, records for the period to 6 April 2021 must be kept until 31 May 2024. 

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 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 or additional rate taxpayer, a Gift Aid donation provides higher or additional 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

A bag is considered as such, and subject to the 10p charge if it has an opening, isn’t sealed, and is:

• Unused: it is new and has not 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:

"You’re not required to charge for a bag containing an unwrapped blade and unwrapped loose seeds. But if you add a box of cornflakes then you would have to charge"

Penalties

Local authorities must publish details of penalty levels, and when they will be imposed.

Variable penalties cannot be imposed where a fixed penalty has already been charged for the same matter unless a non-compliance notice has been issued. 

Fixed penalties: 

Variable penalties: 

Penalties are reduced by 50% if paid within 28 days. Where a penalty is not paid within 56 days, it is increased by 50%.

Penalties can be appealed within 28 days of receipt. 

Useful guides on this topic

English plastic bag charge (VAT)
This is a freeview 'At a glance' guide to VAT and the English carrier bag tax.

Scottish plastic bag charge (VAT)
What is the carrier bag charge? Who does it apply to? Are small businesses subject to the plastic bag tax?

Plastic Packaging Tax
What is Plastic Packaging Tax? Who does it apply to? Are small businesses subject to Plastic Packaging Tax?

Gift Aid
What is Gift Aid? How does it work? What are the rules? 

Legislation

The legislation relating to carrier bags in England is included in the Statutory Instrument 'The Single Use Carrier Bag (England) Order 2015'.

External link

Carrier bag charges: retailers' responsibilities