Returnable packaging

What it means

Returnable packaging is packaging returned after use to the supplier or into a system for reuse, such as pallets, crates, barrels, gas cylinders or returnable bottles. A deposit is often paid for it, refunded when the packaging is returned.

In the books, returnable packaging is tracked separately from the goods. The owner records it as inventory or assets and keeps track of packaging lent out so it knows where it is. A deposit received or paid is neither income nor expense but a liability or receivable.

For VAT, a deposit on returnable packaging is generally not part of the taxable amount if the packaging is returned. If it is not returned, the deposit becomes part of the price and VAT applies. Packaging returned to suppliers should be distinguished from the deposit return scheme for drinks containers aimed at consumers.

How it works in practice

For clients working with pallets and crates we set up stock records of packaging by partner: how many items each customer holds and how many we owe suppliers. Without these records, differences build up and cannot be explained at the stock-take.

We show packaging deposits on separate invoice lines so they can be booked correctly and assessed for VAT. At year end we agree packaging balances with key partners and settle any not returned.

For producers and importers of packaged goods, packaging is also linked to extended producer responsibility, with duties to keep records and fund collection. Returnable packaging reduces waste and also features in ESG reporting.

What to watch out for

Packaging not returned for years is in fact lost. If the company keeps showing it as a receivable or inventory, it overstates its assets. Unreturned packaging should be invoiced or written off after a set period.

For packaging lent to customers, a contract setting out who is liable for damage or loss is important. Without it, disputes over missing pallets often end with the owner bearing the loss.