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The Welsh Assembly Government is to introduce a compulsory charge (initially to be set at a minimum of five pence) on single-use carrier bags, which retailers must charge to customers in Wales, with effect from 1 October 2011.
This is not an HMRC measure, but it has implications for VAT and direct tax, as explained in Revenue & Customs Brief 23/11.
The charge is consideration for the bag and is taxable at the standard rate of VAT. So that customers pay the same amount regardless of the VAT status of the business, the stated minimum charge is the minimum total to be charged by non-VAT-registered businesses.
The carrier bag charge will be deemed to include VAT when charged by VAT-registered businesses, so they would charge 4.17 pence (plus VAT).
Users of the VAT retail scheme should ensure this is properly accounted through their scheme, where applicable.
For the purposes of 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 Welsh Assembly expects the proceeds to be used to fund good causes in Wales; relief may be available where the normal charitable donations/gift aid rules are met.
