Plastic bottle recycle

Plastic Packaging Tax: the challenges and what we know so far

Rob Janering, Partner, VAT and Customs Duty services
26/05/2022
Plastic bottle recycle

On 1 April 2022 a new environmental tax was introduced in the UK with the Plastic Packaging Tax (PPT) coming into force with an intention to change behaviours on the use of plastics. 

It is not a tax that is looking to generate lots of revenue for the Exchequer and hence it should not be a large financial burden for businesses, at least in terms of what is payable.

However, the information needed to determine if PPT is payable and then what has to be supplied in returns submitted to HMRC is onerous and likely, in most circumstances, to create real challenges.  These are not insurmountable though and with some sensible planning it should be possible to confirm PPT’s impact on your business.  To help we have set out below some key points to know about the tax and also how to manage it.

What is the tax?

The need to register for PPT occurs under two different scenarios.  The first is when you manufacture plastic packaging in the UK and the second is where you import it.  If in either scenario the weight of plastic packaging you make or import exceeds 10 metric tonnes, registration is needed.  This needs to be looked at for all products from 1 April 2022 onwards.

It is important to note that the test above applies to all plastic packaging.  However, if you meet the test to be registered then the tax only applies to those items within the scope of it.  This, principally, means plastic packaging that contains less than 30% recyclable material.  If its not possible to claim a deferral of or exemption from PPT (see below) then tax will be due at a rate of £200 per tonne.

The scope of PPT

What’s covered?

The tax has been designed to capture plastic packaging which is used in two specific ways:

  1. Within the supply chain; and
  2. For single use by a consumer

For the first category, any plastic packaging that is designed to contain, protect, allow for handling and delivery or present the goods will be within scope.  Examples of plastic packaging which would be in this definition include the film wrap around meats and trays which contain ready meals.  Packaging which is in place to protect the product during travel (i.e. a wrap around multiple products on a pallet) would not be within the scope of PPT.

For the second category of plastic packaging it is again necessary to look at the purpose of it and the same tests as for supply chain packaging applies.  In effect it will capture packaging that will be used once and then thrown away by the consumer.  This will mean items such as ready meal pouches and packets, disposal cups and bowls.  Plastic, disposal cutlery will not be in scope though as that is not packaging.

When PPT doesn’t apply

As a starting point all plastic packaging is potentially subject to PPT.  This won’t be the case though if the plastic consists of more than 30% recycled material.  It is also important to consider the following when determining what is and isn’t within the scope of the tax:

  • If the packaging is intended to be used multiple times (i.e. not thrown away after one use), it will not be subject to PPT.  Care is needed here though as items such as resealable cheese packets or ice cream tubs do not, in HMRC’s view, benefit from this characteristic;
  • Packaging that is integral to holding the product will not be subject to PPT.  So, items such as coffee capsules or perforated rice bags do not get taxed.  This is not the case though for caps or lids on food products which are separate from the containing item.  Here you need to distinguish between the two and apply the rules of the tax to each in turn.
  • Packaging that is going to be used primarily for presentation purposes is also not within the scope of the tax.  So, shelves for displaying items for sale and re-usable trays (such as in schools) will be outside the scope of PPT.
  • If the items subject to the tax will be exported from the UK it is possible to claim a deferral or credit of PPT.  The first relief will apply if the product is manufactured in the UK but with an intention to export within 12 months.  The second is applicable if you import into the UK but have an intention to re-export the items within 2 years.
  • Finally, there are a number of exemptions from PPT for certain products.  Principally this is restricted however to plastic packaging used for medicinal products or a small number of situations where it is set aside to be used for something other than packaging.

Practical steps to take

PPT is not a tax which is passed on along the supply chain, like VAT.  It is borne by the party liable to account for it and therefore consideration of the extra costs it will generate need to be considered when pricing your products.  At the moment there is no need to identify the tax you have paid on invoices but HMRC strongly suggest this happens (despite the legislation on this being withdrawn from the original copy).

As mentioned it is unlikely that the tax to pay will be excessive but it will impact P&L.  To ensure compliance with PPT and also make sure the cost is clearly communicated we would recommend the following:

  1. Review all the products you make or import to determine if PPT will apply to them.  If it will, check whether it is likely that the 10-tonne threshold will be exceeded;
  2. If you will need to account for PPT, consider how to gather all the information needed in the returns.  These cover calendar quarters with submission due a month after the end of the period.  It is necessary to include detailed information such as the weight of all packaging both in and out of scope of PPT, which is something that your existing ERP or accounting system might not currently gather;
  3. Decide on a method for determining the weight of the products.  There are several options available and it is likely one will be more appropriate than others;
  4. Agree on how the PPT cost will be borne.  Can you pass it onto customers – do contracts allow for that?  How will these extra costs be communicated to third parties; and
  5. Consider what reliefs could apply, to mitigate any tax that is payable.

There is without doubt a certain amount of investment that must be undertaken by all businesses to understand their liability to this tax.  Even where it is not payable because you are already using recycled materials, the need to record and account for packaging used (where values are above the threshold) will add extra work for your business.

Given the ongoing trend and need to use greener and more sustainable products, we expect this to be an area that HMRC look at in detail once the first returns start to be submitted in July 2022. 

Therefore, despite the extra work it will generate, businesses should at least undertake a high-level review of their position.  This should allow for you to know as a minimum if further research is needed and, if so, plan that appropriately.

Missed our recent Plastic Packaging Tax webinar? Watch the recording here to make sure you’re prepared.

Insights

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Unsure if you have paid import VAT and if so how it is to be reclaimed?
Intended to encourage the use of recycled plastic packaging materials.
From 1 July 2021, the EU will introduce new VAT rules for B2C supplies of goods including new obligations for Online Market Places (OMP)
Unsure if you have paid import VAT and if so how it is to be reclaimed?
Intended to encourage the use of recycled plastic packaging materials.

Contact us

Rob Janering
Rob Janering
Partner, VAT and Customs Duty services
London