Industry News: Policy Briefing on Plastic Packaging Tax
A new Plastic Packaging Tax (PPT), first established by Part 2 of the Finance Act 2021 (c. 26), is to be introduced from 1 April 2022 and will apply to all finished plastic packaging manufactured in, or imported into the UK, that does not contain at least 30% recycled plastic.
Plastic packaging is defined as packaging that is predominantly plastic by weight.
The tax is relevant to an estimated 20,000 manufacturers, importers, business customers of manufacturers and importers of plastic packaging, and consumers who buy plastic packaging or goods in plastic packaging in the UK.
This tax is similar to other ‘green taxes’ such as the Climate Change Levy and Landfill Tax, and mirrors the UK government’s green agenda. The tax will provide a clear economic incentive for businesses to use recycled plastic material in plastic packaging, which will create greater demand for this material and in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
The key features of the tax include:
1. The tax applies to plastic packaging components (i.e. individual items of packaging, for example a roll of film, a lid, a bottle, a label) both produced and imported to the UK with the tax charged at £200 per tonne of plastic packaging
2. PPT will not be payable if the manufactured or imported goods or packaging:
• do not meet the 10 tonne per annum minimum threshold;
• contain 30% or more recycled plastic content;
• is made of multiple materials of which plastic is not proportionately the heaviest when measured by weight;
• is an immediate packaging of licensed human medicines; or
• is going to be exported out of the UK within a year.
• if it is one of the types of packaging component are exempt from the tax. These are:
– plastic packaging manufactured or imported for use in the immediate packaging of a medicinal product or for aircraft, ship and rail stores;
– plastic packaging components which are used in the delivery of goods into the UK and for transport for imported goods.
3. There is also an exemption for manufacturers and importers of less than 10 tonnes of plastic packaging per year to mitigate against disproportionate administrative burdens in comparison to the tax liability for those who are likely affected.
4. Crucially, registration for PPT will be required even if a business meets the 30% recycled content threshold and does not need to pay any tax.
The tax is designed to provide an economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging.
It is estimated that as a result of the tax the use of recycled plastic in packaging could increase by around 40%. This is equal to savings of nearly 200,000 tonnes of carbon from 2022 to 2023.
The impact on manufacturers
The tax is set to have a significant impact across the manufacturing industry. This includes UK manufacturers of plastic packaging, manufacturers that utilise plastic packaging and import goods with plastic packaging, and subsequent business customers.
The stringent criteria of the tax also means that recycled plastic will be given precedent over plastics that may actually be low plastic content. Therefore, manufacturers are given incentives to recycle rather than cut down or innovate compostable, biodegradable or even plastic free packaging.
Furthermore, even for the manufacturers who do fall below the 10 tonne per annum threshold that create a tax charge, the maintenance of data for audit still entails a cost. Businesses involved in the manufacture, import or supply of plastic packaging should start familiarising themselves with the PPT. They can do this by reading the high-level details of the tax set out in the Summary of Responses to the policy consultation in 2020 on GOV.UK here
The government is continuing to work with industry, to develop further regulations and guidance to help implement the tax.
Secondary legislation and guidance giving more detail will be available in due course and updated iteratively to help businesses prepare for the introduction of the tax.
Actions manufacturers should consider taking
Impacted businesses need to be aware of and start preparing to meet their compliance obligations well in advance of 1 April 2022.
Critical actions that should be considered include:
• assessment of the likely impact of PPT on your business;
• assessing supply chains to determine which are affected, who is the responsible party, and any required amendment to contracts and pricing;
• interacting with customers and suppliers;
• reviewing existing data and reporting capabilities to assess the gap that needs to be closed in order to comply with the PPT compliance obligations;
• designing systems and assign roles and responsibilities for meeting PPT compliance obligations
• implementing required changes to systems to enable necessary data collection, reporting and invoicing requirements to be met. Sufficient record keeping systems should be in place to show that the tax does not have to be paid or for exporters to claim a credit for the goods they export or for those that are subsequently exported by someone further down the supply chain.
HMRC has published Get your business ready for the Plastic Packaging Tax guidance with other materials to help aid understanding on types of plastic packaging subject to the tax.
The detailed description of ‘packaging components’ is detailed in the ‘Draft statutory instruments: descriptions of products’.
The definition of a ’finished’ plastic packaging component is explained in a ‘Technical note on substantial modification’ and detailed in the accompanying ‘Draft statutory instruments: substantial modification’.
For More Information:
If you have further questions or would like to share the impacts of the PPT on your business please contact:
Senior Energy and Climate Change Specialist