Scrap, waste and manufacturing by-products
Manufacturing and processing generate scrap, offcuts, waste and by-products, and many businesses sell these on to recyclers and traders. Because it feels like disposing of leftovers, the sale is sometimes treated casually for tax. But scrap is goods, and selling goods is a taxable supply. There are also specific regimes for certain scrap categories, so this is worth handling deliberately.
Selling scrap is a taxable supply
Scrap, waste and by-products are goods. When a registered person sells them in the course of business, that is a taxable supply, and sales tax applies on the consideration received for the scrap. A manufacturer selling its production scrap to a recycler is making taxable supplies, in exactly the way it makes taxable supplies of its main products — the fact that scrap is a residual output does not put it outside the net. So scrap sales belong on the sales tax return as output, valued at what the scrap actually fetches. Treating scrap proceeds as if they were incidental cash outside the tax system is a common and correctable error.
Withholding and specific-rate regimes
Some scrap categories do not simply follow the ordinary rule. Certain kinds of scrap — some metal and plastic scrap, for example — have at various times been brought under withholding sales tax mechanisms or specific-rate regimes, reflecting the sector's compliance history. Under a withholding mechanism, the buyer may be required to withhold and deposit tax on the scrap purchase, which changes who accounts for it. Because these regimes are specific and subject to change, a business dealing in those categories should confirm the current treatment for its particular scrap rather than assume the general position holds. The practical point is to check whether your scrap falls into a special regime before setting your invoicing, because the mechanics can differ from an ordinary sale.
The input tax already claimed
A frequent worry is whether selling scrap disturbs the input tax already claimed on the raw materials. It does not. Input tax on materials used in production is not clawed back merely because part of the output emerged as scrap or a by-product — the materials were used in the taxable activity, and selling the resulting scrap is itself a taxable supply. This is the opposite of an obsolete-stock write-off, where goods never reach a taxable supply and an input-tax reversal can arise. With scrap, the chain from input to taxable output stays intact: materials in, products and scrap out, tax on both when sold.
Common mistakes
- Treating scrap and by-product sales as incidental proceeds outside the sales tax net.
- Ignoring a withholding or specific-rate regime that applies to a particular scrap category.
- Wrongly reversing input tax on raw materials just because some output became scrap.
- Under-valuing scrap supplies rather than accounting on the actual consideration received.
We confirm whether special scrap regimes apply and keep your scrap sales and input tax correctly accounted for.
Avail our sales tax servicesWhere it fits
Scrap sales sit close to the treatment of used and second-hand goods and are the mirror image of an obsolete-stock write-off — one is a taxable sale, the other a non-sale. The mechanics rest on input and output tax, and charging at all depends on being a registered person. Scrap is goods; sell it and tax it.
Sources
This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.
Questions people also ask
Is the sale of scrap or waste subject to sales tax?
Yes, as a rule. Scrap, waste and by-products are goods, and a sale of them by a registered person in the course of business is a taxable supply. Sales tax applies on the consideration received for the scrap. So a manufacturer selling off its production scrap is making taxable supplies, not disposing of something outside the tax net, subject to any specific regime for the particular scrap.
Do some kinds of scrap have special sales tax rules?
They can. Certain scrap categories — some metal and plastic scrap, for example — have at various times been subject to withholding sales tax mechanisms or specific rate regimes rather than the ordinary approach. Because these regimes are specific and change, businesses dealing in those categories should confirm the current treatment for their particular scrap rather than assume the general rule applies unchanged.
Do I lose the input tax on materials that became scrap?
No. Input tax claimed on raw materials used in production is not clawed back merely because some output emerged as scrap or a by-product. The materials were used in your taxable activity, and selling the resulting scrap is itself a taxable supply. This is different from writing off stock that never reaches a taxable supply, where an input-tax reversal can arise.
Send the tax year and the transaction or filing involved, and we will tell you what is actually required.
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