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In line with the current focus on sustainability, the Government introduced a new tax on plastic packaging (“PPT”) from 1 April 2022.
In a clear attempt to incentivise businesses to import and manufacture recycled plastics, PPT will apply at a rate of £200/tonne on plastic packaging with less than 30% recycled plastic. The tax kicks in at a threshold of 10 tonnes per annum: if you manufacture or import plastic packaging or pack goods into plastic in the UK, then your business will be within the scope of the tax if it does not meet the above criteria.
‘Plastic’ is defined widely and includes biodegradable, compostable and oxo-degradable plastics.
What do businesses need to do?
Establish whether your plastic packaging is within scope
In the vast majority of cases, it will be clear whether or not an item is plastic packaging, but remember that the definition is broad and so it is helpful to check the HMRC flowchart and guidance to assist with this – see: https://www.fdf.org.uk/globalassets/resources/public/general/ptf-060-21-a1.pdf.
For example, packaging that is integral to the goods is exempt from the tax because the packaging is necessary to enable the customer to use the goods. Items such as water cartridge filters or tea bags fall into this category.
There are several other situations where exemptions are granted. Some of these are available as tax credits if they can be proved later (e.g. the plastic is exported or converted into a new component). As a result, import/export and logistics companies, in particular, may be able to significantly reduce their exposure with the right recording processes.
Register for PPT
Businesses that have imported or manufactured 10 tonnes or more of finished plastic packaging since 1 April 2022 or that expect to import or manufacture 10 tonnes or more of finished plastic packaging in the next 30 days must register for PPT at the earliest date possible.
If you do not meet the threshold on either of these tests, you should, in any event, record the amount of plastic imported or manufactured to demonstrate that you are outside of the scope of PPT. This is because other businesses in your supply chain will want evidence of your status in relation to PPT for their own record-keeping requirements.
Record plastic usage
The reporting aspects of the tax will need to be considered by the operations/logistics functions and finance teams of businesses. Robust evidence is required to prove a 30% recycled content, and companies are expected to keep records evidencing:
- the origin and content of the recycled material;
- the date the plastic was manufactured;
- the proportion of the recycled plastic contained in the output materials of the recycling process.
Supply agreements should require such evidence to be provided where appropriate and seek to secure the necessary indemnities.
These requirements may initially be onerous for some businesses, but creating a clear framework for auditing the usage of recycled plastic should also enable those companies seeking to minimise their use of ‘virgin plastic’ to publicise that fact. Outside of the obvious self-reporting opportunities, the sustainable sourcing and recycling of materials such as plastic are key performance indicators in the Loan Markets Associations’ Sustainability-Linked Loan Principles. Sustainable plastic use is also factored into the impact assessments of companies applying for B Corp certification, a growing movement of businesses that give equal weighting to people, the planet and profit.
As a tax introduced to incentivise sustainable and environmentally friendly practices, the more the tax increases consumer knowledge and competitive pressure on businesses to improve their sustainability credentials, the more likely it is to be considered a success.
Other considerations
Businesses are permitted to pass on the cost of PPT to customers. Any price increase, though, will have VAT and corporation tax implications. Therefore, companies should consider these projections in advance of passing the cost on, particularly if there are questions about whether the company will be claiming PPT tax credits and/or whether the company will be able to reclaim any additional VAT.
Take advice
If it is not clear what the implications of PPT will be on your business, or you are considering updating your materials to cover your new reporting responsibilities in relation to PPT, it’s worth taking professional advice. This is particularly important because as the tax beds in, the approach that HMRC is likely to take to applying and treating the tax is not yet clear.
Cathy Bryant
Cathy Bryant is a partner in the Blake Morgan’s corporate team specialising in corporate tax. As a dual qualified lawyer, Cathy brings a depth of experience to her role as an adviser on tax matters in corporate transactions. Cathy also advises on employment taxes – for example on termination payments made to employees, the application of IR35 and other employment related tax matters. She develops share incentive schemes for employers and advises on the structure and scope of these.
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