Plastic Packaging Tax | All you need to know

Plastic Packaging Tax | All you need to know

Contents

The Plastic Packaging Tax is a new tax introduced on 1st April 2022. The tax is designed to encourage the use of more recycled plastic and applies to plastic packaging produced in, or imported into, the UK that does not contain at least 30% recycled plastic.

The environmental tax forms part of the UK Government’s bid to tackle avoidable plastic waste and aims to drive real and lasting change in the packaging industry.

What is the Plastic Packaging Tax?

A new tax on plastic packaging manufactured in or imported into the UK that does not contain at least 30% recycled plastic applies from 1st April 2022.

Manufacturers or importers of plastic packaging, including importers of packaging which already contains goods, need to ensure they comply with the tax.

The rate of tax is £200 per metric tonne of plastic packaging.

Plastic Packaging Tax (PPT) is an environmental tax designed to provide a financial incentive for businesses to use recycled plastic to manufacture plastic packaging. The government envisages this will create greater demand for recycled plastic, stimulating increased levels of recycling of plastic waste and diverting it away from landfill or incineration.

Who does it affect?

Any business that produces or imports plastic packaging into the UK will be liable to pay the tax if the packaging contains less than 30% recycled content. Companies are exempt from paying the tax if they manufacture or import less than 10 tonnes of plastic packaging in 12 months.

Plastic Packaging Tax at a glance

  • The UK-wide Plastic Packaging Tax came into effect on1st April 2022.
  • The tax applies to plastic packaging manufactured in or imported into the UK containing less than 30%recycled content.
  • The tax is charged at a rate of£200 per tonne.
  • Businesses are exempt from paying the tax if they manufacture or import less than 10 tonnes of plastic packaging in a 12-month period.

What packaging is liable for the tax?

A charge to PPT arises when a chargeable plastic packaging component is produced in the UK by a person acting in the course of a business or where it is imported into the UK on behalf of such a person. It only applies to ‘finished’ products.

A ‘packaging component’ is a product that is designed to be suitable for use, whether alone or in combination with other products, in the containment, protection, handling, delivery or presentation of goods at any stage in the supply chain of the goods, from the producer of the goods to the consumer or user. This broad definition catches items that may not be considered packaging, such as coat hangers. It also covers reusable and refillable items such as plastic crates and intermediate bulk containers (IBCs).

If the packaging component meets the definition, it does not matter if it is produced or imported for use in the supply chain of the goods or by a consumer or user.

Imports of packaging which already contains goods, such as plastic bottles filled with drinks or plastic packaging around goods, are also potentially subject to the tax with some exclusions. The exclusions apply to filled packaging components with a primary storage function, such as glasses or DVD cases, and where the packaging is an integral part of the goods, such as printer cartridges or tea bags.

PPT is not charged on plastic packaging, designed to be reused to present goods such as shop fittings or sales stands.

Products are also subject to PPT if they are designed as single-use packaging products for use by a consumer or user in containing any commodity or waste. This means that plastic bags, bin liners, nappy sacks, disposable cups, and such are subject to PPT.

The UK Government has defined plastic packaging as ‘packaging that is predominantly plastic by weight’. This has been broken down into the following categories:

Packaging designed for use in the supply chain

This includes bottle tops/caps, food trays, crates, flexible food pouches and many more examples – all of which are in scope.

Packaging designed as single use for consumers

This includes carrier bags, disposable cups, gift wrapping and more – all of which are in scope.

Categories of plastic packaging which are not covered by the tax include packaging which is primarily designed for storage, such as toolboxes and glasses cases; packaging that is an integral part of the goods, for example inhalers and plug-in air fresheners; and the immediate packaging of licensed human medicinal products.

Who pays the Plastic Packaging Tax?

The responsibility for paying the Plastic Packaging Tax falls predominantly with importers of filled or unfilled plastic packaging and UK manufacturers of plastic packaging.

The tax only applies if the business places more than 10 tonnes of plastic packaging onto the UK market.

The business that completes the ‘last substantial modification’ to the plastic packaging or component is liable for the tax. If the last substantial modification is made at the point where empty packaging is filled with goods/products, then it will be the substantial modification point prior to this.

Care and due diligence will be applied to the tax point. If you believe the Plastic Packaging Tax should have been paid before the packaging reaches your business,

you should carry out due diligence checks on who you’re doing business with, to reduce the risk of being involved in a supply chain where Plastic Packaging Tax due goes unpaid.

If you do not do these checks or keep enough records of them, you could be held jointly and severally liable (or secondarily liable) for any unpaid Plastic Packaging Tax.

The checks help protect your business, if any business you trade with either:

  • avoids, or evades paying Plastic Packaging Tax
  • does not meet Plastic Packaging Tax requirements.

What if I fail to comply with UK Plastic Packaging Tax?

Not complying with the Plastic Packaging Tax can lead to both civil and criminal penalties. These penalties can apply for failing to register, failing to file returns and failing to pay any liability.

Where an organisation fails to fulfil any of these obligations, there is a £500 fixed penalty. There is a further daily penalty of £40 for every day, after the first, on which the organisation continues to default.

The only defence against these penalties is a reasonable excuse for the failure. Reasons such as insufficient funds or cashflow difficulties do not qualify. There is however an

appeals process for disputing penalties where a business believes this is justified or warranted.

To prevent organisations from artificially splitting their operations so that they come under the ten tonne per year registration threshold and avoid paying the tax, there are also anti-avoidance and anti-fragmentation measures in place.

Where HMRC determines that such avoidance is happening, it can issue a direction to those businesses it sees as complicit, so they are treated as single taxable entity.

Additionally, it’s important to note that companies are responsible for carrying out due diligence checks on other companies that they do business with. This will lessen the risk of being involved in a supply chain where Plastic Packaging Tax goes unpaid. Companies should keep records of the due diligence checks they carry out, otherwise they could be held jointly and severally liable (or secondarily liable) for any unpaid Plastic Packaging Tax.

In order to be able to submit PPT returns and meet their tax compliance obligations, there are two key challenges for businesses:

Getting the data needed to prepare the return

Identifying the key teams within the business, collecting the underlying data and evidence to identify packaging that needs to be reported and being able to report both its weight and recycled content at component level is a significant exercise in itself.

Processing the data and making tax decisions

Once the data has been collected, a tax decision needs to be undertaken for each component to determine whether PPT is due and, even if PPT is not due, where the weight needs to be reported on the PPT return boxes.

Use our Plastic Packaging Tax Calculator to figure out your estimated liability.

At what point does the Plastic Packaging Tax apply?

HMRC defines the plastic components as liable for the tax when ‘finished’. This is when the last substantial modification is made.

For plastic packaging that is imported into the UK and already contains goods or products, the tax applies to the packaging when they are imported, with no additional substantial modifications made.

The last substantial modification is the last manufacturing process that makes a significant change to the nature of the packaging component, as it alters one of the following characteristics of the packaging component:

  • Shape
  • Structure
  • Thickness
  • Weight

For other packaging, it will be the last substantial modification before the packaging is filled with products. This includes extrusion, moulding, layering, and laminating, forming, and printing. Not all manufacturing processes that change the shape or structure is considered as substantial modification. For example:

  • Blowing or otherwise forming a packaging component from a preform;
  • Cutting film to size or cutting formed trays out of a sheet;
  • Gluing labels to a tub or heating a shrink film label onto a bottle;
  • Sealing such as attaching a film lid onto a tub.

Who is exempt from the tax, and do they need to take any action?

There are four categories of packaging exempt from the tax. They are products:

  • Used for the immediate packaging of licensed human medicine
  • Permanently recorded as set aside for non-packaging use
  • Used as transport packaging to import multiple goods safely into the UK
  • Used in aircraft, ship and rail goods stores

Exempt packaging which counts toward the 10-tonne threshold for registration:

Plastic packaging used for human medicinal products, and plastic packaging permanently recorded as set aside for non-packaging use, must be included when working out the total weight of packaging manufactured or imported.

Exempt packaging which does not count towards the 10-tonne threshold for registration:

Plastic packaging used for transporting imported goods, and for stores on international aircraft, ship and rail journeys, does not need to be included when working out the total weight of packaging manufactured or imported.

Packaging excluded from the tax

There are three types of products excluded from the tax. These do not need to be included when working out the total weight of packaging manufactured or imported.

They are products which are designed to be:

  • Used in the long-term storage of goods
  • An integral part of the goods
  • Reused for the presentation of goods

It is also worth keeping in mind that plastic components at all stages of production, including containment, movement, handling, delivery and presentation, are all subject to the tax, which can complicate matters when calculating potential outlays.

What information should businesses be gathering for the tax?

The new tax calls for greater collaboration and transparency within the supply chain. The businesses that manage their data effectively will be able to maintain a clear audit trail and prove, without a doubt, the authenticity of the materials used in their packaging.

The tax returns will require information concerning the weight of:

  • Chargeable plastic components that the business has produced or imported
  • Non-chargeable plastic components that the business has produced or imported
  • Chargeable plastic components where the direct export condition is not met
  • Chargeable plastic components produced or imported for which the direct export condition is met
  • Plastic components are exempt because they meet the required threshold of 30% recycled content
  • Plastic components that are exempt through current PPT legislation

Once registered for the tax, you’re required to keep the records for at least six years following the end of each accounting period.

In summary, the records are:

  • Weight details of each plastic packaging component
  • Details of the weight of plastic packaging exported, if applicable
  • Evidence of recycled content, including how you’ve worked out the percentage of recycled plastic, its source, and what product lines the content is used with
  • Evidence of why an exemption applies (e.g. packaging for medicine used for human medical products).

Notably, you should keep records even if you are below the threshold because of a rolling 12-month time period, so you could subsequently hit the limit and be liable to keep records and pay tax.

What long-term actions would you recommend businesses take (i.e. changing packaging supplier)?

Assess the likely PPT impact on the business

Review your supply chain to determine what will be affected and who will be responsible

Make any required amendments to contracts and pricing

Engage with customers and suppliers

Interrogate existing data collection and reporting

Identify potential gaps in data collection

Implement required system changes

Partner with a specialist

Businesses should look to partner with a packaging data specialist that can consistently deliver a highly efficient and transparent service without the need to scale up to meet the requirements.

Ecoveritas offer global data collection and analysis services that can be combined with compliance, guidance and consultancy support. Our range of tools and expertise help businesses navigate the rules of the new legislation. With support, businesses can continue to operate compliantly, competitively and with complete confidence.

Do you find plastic packaging taxing?

Many businesses are unaware of the Plastic Packaging Tax and their potential liability. If you are liable, your business should prepare for quarterly reporting and payments.

What is Ecoveritas?

The easiest and most comprehensive way to manage environmental data and reporting needs.

What does Ecoveritas do?

Ecoveritas is an environmental compliance data specialist that provides a range of tools and expertise to brands, retailers, and supply chains to minimise the environmental impact of their packaging efficiently.

To meet the complex challenges of managing environmental compliance reporting, Ecoveritas offers a unique combination of consulting, data and software that helps companies around the globe take the next step in their sustainability journey.​

Our team takes a fresh approach to the environmental compliance market by adding years of supply chain and technical development expertise to an experienced environmental data team to provide SaaS-based services.

Our mission is to make it easy for companies to understand their obligations, get compliant and respond appropriately through reduction, substitution, and recycling.

Ecoveritas’ services

  • Extended Producer Responsibility Data Management & Reporting
  • Plastic Tax Data Management & Reporting
  • EPR Horizon Scanning
  • EPR Consulting
  • Ecoveritas can help you prepare your packaging for EPR and to get ready to record data from 1st January 2023.

Navigating environmental legislation is time-consuming. For businesses operating across numerous countries, the issue is even more complex.

If you are new to PPT, please speak to one of our advisors on +44 (0)1865 721375 to find out how we can help you take the complexity out of environmental compliance!

Let ecoveritas take the strain

Contact us to discuss your needs