Should you be charging for carrier bags?

From this Monday (October 5, 2015), a 5p carrier bag charge was introduced in England. Shoppers in Scotland, Wales and Northern Ireland are already paying 5p for their carrier bags. The rules were drawn up individually by the devolved administrations for each country, and at different times, so although it looks like the rule is now uniform across the UK, it’s not quite that straightforward. Things could potentially get complicated for those selling at locations in more than one country – for example a farmer/producer near the border selling at farmer’s markets in both Scotland and England. If this is the case, then you can apply for a ‘Primary Authority Agreement’ so you just deal with one authority.


If you are a farmer or food producer selling direct to the public, chances are you’ve always put your customer’s purchase in a bag of some sort – but should you be charging for it now? The answer is, it all depends!


How big is your organisation?

In England, only retailers with 250 or more employees need to charge for the bag. This is 250 employees across the entire business, not just the location where the purchase is being made. In practice, this means most farmers and small producers in England won’t need to apply the charge.

In Scotland, Wales and Northern Ireland however, all retailers must charge for new bags. If you have a supply of pre-used bags, you can give these away free.

What sort of bag is it?

In England, the charge just applies to thin (70microns or less), single use plastic carrier bags (with an opening, handles and isn’t sealed). So if you present the customer’s purchase in a nifty paper or hessian bag, you don’t have to charge for it. A stylish re-usable bag will do no harm for your marketing, and customers will probably love you for not charging. This week I’ve seen people wandering around with armfuls of groceries, too affronted to pay the 5p, although I guess that will settle down as we get used to paying the charge in England.

In Wales, you need to charge for paper bags but bags made from some other materials (including cloth, cotton, jute and hessian) are exempt. In Scotland, you need to charge for paper bags and the exemptions for  bags made from plant materials are different (cotton, flax, hemp, jute and sisal). Hessian is usually made from jute, hemp or sisal so a hessian bag would be exempt in England,  Wales and Scotland. Northern Ireland’s regulations state that all bags are equally damaging to the environment, so there are no exemptions based on material – the charge applies to all carrier bags with a retail price below 20p, irrespective of whether the bags are intended to be used once or re-used.

What’s in the bag?

Some purchases are exempt, but the bag must only contain the exempt items. Exempt items vary from country to country – things farmers and food producers are most likely to be interested in are:


  • Raw meat, poultry and fish (and products made from raw meat, poultry and fish)
  • Raw vegetables (roots, stems and shoots)
  • Flowers
  • Unwrapped takeaway food
  • ‘Goods contaminated by soil’ – this will include potatoes and other root vegetables, and plants.

Scotland and Wales

  • Unwrapped food items – loose fruit & veg, bread etc
  • Loose seeds, bulbs, corms or rhizomes
  • Plants and flowers that could be contaminated by soil
  • Packaged uncooked meat, poultry and fish (and products made from raw meat, poultry and fish) BUT these can only be placed in a small bag!

Unwrapped takeaway is tricky. The regulations talk about items that are partly unwrapped like chips in a paper or food in containers which are not secure enough to prevent leaking. But anything that’s securely wrapped and sealed  falls outside all the exemptions and is chargeable. Cooked food  – if it’s not unwrapped takeaway it will fall outside all the exemptions and therefore is  chargeable.

If the bag contains ANY chargeable items, then you have to charge for the bag.

So to summarise so far:

In England, you’re exempt if you have less than 250 employees. That will cover most small producers. If you’ve more than 250 employees, remember only plastic bags incur the charge; if you use paper bags there’s no charge.

In Scotland and Wales, it doesn’t matter how many employees you have. You’ll have to charge for paper bags too – bags made out of materials such as hessian are exempt but these will probably be too expensive to be giving away! So it’s really down to what goes in the bag. Unwrapped and uncooked foods will be exempt, packaged meat, poultry and fish exempt as long as they so in a small bag. If it’s cooked and packaged, then you will have to charge for the carrier bag if the customer wants one.

Northern Ireland

For Northern Ireland, the wording is simpler. Relevant items for the food and farming sector are

  • Hot take away food and drinks (other items can be placed in the bag with the hot food eg a cold drink or chocolate bar)
  • Unpackaged food (eg fruit and vegetables, bread and baked goods), seeds and bulbs
  • Small bags for packaged, uncooked meat, poultry and fish.


It’s NOT a tax – it’s a levy, intended to encourage consumers to re-use bags and reduce the number of bags being discarded, and their impact on the environment.  This means the revenue from the sale of the bag does not have to be passed over to HMRC.

In England, you have to keep records of the number of chargeable bags supplied, proceeds of the charge and what you did with the proceeds, and send them to Defra by 31 May after the end of the ‘reporting year’. The first reporting period in England is 5 October 2015 to 5 April 2016, so the report needs to be made by 31 May 2016. After that the reporting period is the tax year (6 April to 5 April). And you need to keep your records for three years. These records will be publicly available – so if you choose not to donate your proceeds to charity, your customers will be able to see this.

In Scotland, you don’t need to keep records if you have less than 10 FTE staff. Otherwise record keeping is essentially the same as above, although the charge has been in place since October 2014 now.

Bags are standard rated for VAT, so when you charge a customer the 5p bag levy, you are making a standard rated sale, with output tax of 0.83p. You’ll need to record the bag levies and include this on your VAT return. If you are a farmer selling only zero rated supplies at your farm shop or at a farmer’s market don’t overlook this!

In England, Scotland and Wales, as the retailer you are encouraged to donate the net proceeds to a charity, but this isn’t mandatory – you could just keep it (accounting for it as sales of course).

In Northern Ireland different rules apply. Retailers don’t have to account for the VAT, but the whole 5p bag charge needs to be paid over to the Department of Environment every quarter.

There will be inspections (unannounced, done as ‘secret shopper’ exercises), and, if you get things wrong, penalties ( fixed penalties £200 for not charging appropriately for the bags, £100 for not keeping records, £100 for not supplying records; variable penalties of up to £5,000 for each breach can be applied).

Feel free to leave a comment or drop me an e-mail at if you have a question. Here’s the detailed government guidance

This publication is intended for general information and should not be relied on as a substitute for professional advice tailored to your precise needs and circumstances. No action should be taken without first taking professional advice and we do not take any responsibility for any loss to any person as a result of acting as a result of this material.

Farmers’ averaging

We all know farm profits go up and down year on year  with production and prices all highly subject to variations like weather, disease and market trends;  farmers’ averaging is a tax relief that has been around for a long time now (the averaging legislation was introduced in 1977). In the simplest of terms it allows farmers to reduce volatility in their tax bills from one year to the next by adding two consecutive years’ profits together, dividing by two and calculating the tax on the average profit of the two years.

Hoops to jump through
As always, there are wrinkles, complications and limitations to claiming the relief, for example the ‘volatility test’ where the profits of the poorer year cannot exceed 70% of the profits of the better year. Unless of course the poorer year’s profits are between 70% and 75% of the better year, in which case a ‘marginal’ averaging applies. In the marginal cases, the tax relief is lower.  Averaging isn’t allowed where one of the years being averaged is the first year of trade. Or the final year of trade. And the profits have to come from farming – if there are other activities such as contracting, catering or holiday lets included in the farm accounts these enterprises need to be excluded from the calculations. Averaging only applies to unincorporated businesses (sole traders and partnership) – if the farm is a limited company or a partnership that has a limited company as one of the partners averaging is not available.


How it works
Averaging is most beneficial when the profits of one year fall into higher rate tax but the other year falls into basic rate. The effect of averaging is to reduce the higher rate tax. Similarly, if there is a year of low profits where there is no tax to pay but the personal allowance is not fully utilised, an averaging claim can increase the profits of that year, and use up the personal allowance, but reduce the profits of the year it is averaged with, so saving tax.

When the annual investment allowance was introduced in 2008, averaging became even more useful, because farm profits could be drastically reduced in those years when there was significant investment in machinery.

Let’s look at an example
Say farmer Jo had farm profits of £28,000 in 2013-14 but only £6,000 in 2014-15. To keep things simple, we’ll assume Jo has no other sources of income. Personal allowances were £9,440 for 2013-14 and £10,000 for 2014-15. In 2013-14 Jo pays income tax on £18,560 (profit of £28,000 less personal allowance) – this is below the threshold for higher rate income tax so Jo pays basic rate tax at 20% – £3,712. There’s also Class 4 National Insurance but I’m not going to complicate the illustration with that. In 2014-15 there’s no income tax to pay, because profits are less than the personal allowance. In fact, £4,000 of the personal allowance is wasted – because it can’t be transferred to anyone else or carried forward to the next year. So for the two years Jo pays total tax of £3,712.

Could averaging help here? £6,000 is only 21% of £28,000, so Jo is entitled to make the claim. Taxable profits are now £17,000 for each year. Income tax is £1,512 for 2013-14 and £1,400 for 2014-15 – £2,912 in total. So Jo has paid £800 too much and gets a refund, with a little interest too. Well worth making the claim.

Changes in 2015 Budget
Averaging has always been based on the profits of two consecutive years (although the profits of the earlier year could already be the ‘averaged’ profits from a previous claim – and here the calculations can get harder to follow) but a very welcome extension to a five year averaging period was announced in the 2015 Budget. There was also a commitment to keeping the averaging rules as simple as possible to understand and operate. The exact mechanics of how this will work has been the subject of an HMRC consultation which closed last week.

When the details of how the the new five year averaging will work have been finalised, I’ll post an update, but in the meantime, if you have any questions about averaging, leave a comment below or drop me an e-mail at

Farming is a unique industry with special tax and business rules. This publication is intended for general information and should not be relied on as a substitute for professional advice tailored to your precise needs and circumstances. No action should be taken without first taking professional advice and we do not take any responsibility for any loss to any person as a result of acting as a result of this material.