Plastic Packaging Tax

Debbie Hatherell, indirect tax director at Deloitte, looks ahead to the introduction of the new Plastic Packaging Tax on 1 April 2022, and examines its impact on business and key considerations.

Plastic Packaging Tax (PPT) will come into effect in the UK on 1 April 2022. It is a tax with a bold green agenda - to incentivise businesses to increase their use of recycled plastic in plastic packaging. The UK Government has projected that the introduction of the tax will lead to a 40% increase in the use of recycled plastic in 2022/23, diverting plastic waste from landfill and achieving carbon savings of 200,000 tonnes.

HM Revenue & Customs (HMRC) estimate some 20,000 businesses will initially be affected and it is the unexpected plastic packaging within the supply chain that presents difficulties. For example, importers sourcing from overseas suppliers will now be required to capture detailed information on the packaging from potentially multiple sources. That’s why all businesses should take the time to understand the basics of the tax and how it operates so you can identify these key items:

• where additional costs may arise in your own supply chains
• the extent to which your business will need to keep records: either to quantify a tax liability and submit returns or show why you are not liable for the tax.
  

In order to help your business navigate this new tax, I’ve set out below some of the key considerations you should note. For any business with international operations, it is worth noting that Spain and Italy are also introducing similar taxes in the coming months, and therefore your business may be liable for plastic packaging taxes in multiple countries, not just in the UK.

Preparing for the implementation of these taxes in the UK, Spain and Italy was the subject of one of theDbriefs webcasts that Deloitte held in December 2021, and you can view it on demand here.

What is within the scope of the UK’s PPT?

Plastic packaging components that are used for containing, protecting, handling, delivering or presenting goods at any stage in a supply chain are within the scope of PPT where plastic is the majority material by weight. However, where the finished packaging has a recycled plastic content of 30% or more, no tax will be due.

There are also certain exemptions and exclusions that are worth being mindful of, for example in respect of the immediate packaging of medicinal products and transport packaging used to import goods into the UK.

Who has to pay the tax to HMRC?

PPT will be payable by the manufacturer or the importer of the plastic packaging at a rate of £200 per metric tonne on ‘chargeable’ plastic packaging components, i.e. plastic packaging components that are finished and have undergone their last ‘substantial modification’, and the plastic content is less than 30% recycled.

Furthermore, only businesses that import and/or manufacture more than 10 tonnes of finished plastic packaging components are required to register for, and where applicable, pay the tax.

Why should I consider PPT in my business?

At first glance, £200 per tonne doesn’t seem very much and the 10 tonnes exemption is quite generous, so you may ask yourself: Why should I consider PPT?

Firstly, the definition of plastic packaging components is very broad and covers plastic suitable for use in the containment, protection, handling, delivery or presentation of goods at any stage in the supply chain from the producer to the user. Therefore it is key that importers and manufacturers ascertain the volume by weight of packaging they may be responsible for.

Additionally, you may face the challenge of obtaining this information. In many instances this data is not readily available as many reporting systems don’t record the weight nor composition of packaging components - therefore this is an additional point you need to consider.

Not only that, but all plastic packaging is also assumed not to meet the definition of recycled plastic for the purposes of the tax unless it can be proven that it does meet the criteria. The implication of this, without having the necessary evidence to support a recycled content of 30% or more, is that HMRC could seek to tax all plastic packaging regardless of the quantity of the recycled element.

Added to this, if the importer or manufacturer does not account for the tax, joint and several liability provisions can impact other businesses in the supply chain.

Lastly, on a more general level, HMRC can also levy behaviour-based penalties. This means where businesses are aware of a potential liability, they should make every effort to comply with the legislation in an accurate and timely manner.

What do I need to think about between now and 1 April?

With 1 April fast approaching, there is a fair bit for you and your business to consider in this time frame. This includes:

• confirming your role in supply chains
• determining product composition and liability to PPT
  
• considering the application of exemptions and exclusions
  
• assessing exposure to joint and several and secondary liabilities
  
• identifying data requirements and systems capabilities.
  

How can we help?

At Deloitte, my colleagues and I are assisting businesses in getting ready for the introduction of PPT in numerous ways. These range from initial impact assessments and advising on specific queries on the application and scope of the tax, all the way through to undertaking end-to-end projects, supporting business processes, and completing returns and ongoing compliance.

We can help businesses get ready for PPT through some or all of these phases, or can provide ad-hoc advice on specific queries as required.