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