The UK’s Plastic Packaging Tax (PPT) is due to take effect from 1 April 2022 and will be payable by manufacturers and importers of plastic packaging containing less than 30% recycled plastic content at a rate of £200 per metric tonne where certain thresholds are met.
The government envisages the plastic packaging tax will create greater demand for recycled plastic, stimulating increased levels of recycling of plastic waste and diverting it away from landfill or incineration.
A charge to PPT arises when a chargeable plastic packaging component is produced in the UK by a person acting in the course of a business or where it is imported into the UK on behalf of such a person.
The UK business which performs the last substantial modification before the packing or filling process is the one which is liable to pay PPT. A business which imports plastic packaging components which have already undergone their last substantial modification will be liable for PPT.
A crucial aspect of the PPT regime is that downstream businesses that buy plastic packaging on which the tax should have already been paid may be found jointly and severally liable for any unpaid tax. In connection with this, on 30 December 2021, HMRC published guidance on the due diligence checks businesses should undertake in connection with the PPT. The guidance does not set out a specific list of checks that should be carried out in every case. Rather, it is the responsibility of each business to decide which checks are “relevant, reasonable and proportionate” depending on the businesses’ “personal circumstances and supply chain”.
Vikki Jackson-Smith, MD at J&B Recycling, advises: “Ahead of April, it is important that businesses assess whether they will be required to pay the PPT in respect of any plastic packaging that does not meet the 30% threshold and, even where a business is not required to pay the PPT directly, it will still need to consider what steps should be taken to ensure that it is not involved in a supply chain where the PPT goes unpaid by someone else."
How is the new tax charged?
Plastic packaging containing less than 30 percent recycled plastic content that is produced in or imported into the UK (Chargeable Plastic Packaging) will be taxable at £200 per tonne. Where Chargeable Plastic Packaging is manufactured in the UK, the Tax will be payable by the manufacturer; and, where Chargeable Plastic Packaging is imported into the UK, the Tax will be payable by the person on whose behalf it is imported. A plastic packaging component will be taken to have less than 30 percent recycled plastic content unless it is shown otherwise.
The recycled content of a component will be based on the weight of the plastic material within a component, compared to the amount of recycled content. For these purposes, recycled plastic is plastic that has been reprocessed from recovered material by means of a chemical or manufacturing process, other than organic recycling, in order to be used for its original purpose or for other purposes.
The Tax will not be chargeable on plastic packaging where:
- it has 30 per cent or more recycled plastic content;
- it is made of multiple materials of which plastic is not proportionately the heaviest when measured by weight;
- less than 10 tonnes of plastic packaging are manufactured and/or imported by a business annually;
- it is manufactured or imported for use as immediate packaging of human medicines;
- it is in use as transport packaging to import products into the UK; or
- it is exported, filled or unfilled, unless it is in use as transport packaging to export products out of the UK.
The Tax will be paid by reference to accounting periods determined in accordance with regulations by HM Revenue and Customs (HMRC).
The liability for this Tax can be deferred where Chargeable Plastic Packaging is intended to be a direct export. The deferral period is 12 months, starting from the day the Chargeable Plastic Packaging is manufactured or imported. The liability will be cancelled if the Chargeable Plastic Packaging is exported before the end of the deferral period.
Who is liable?
PPT will be payable by:
- the producer/business who performs the last ”substantial modification” in the UK on a component before the packing or filling process. ”Substantial modification” is a chargeable manufacturing process which significantly changes the nature of the packaging component and its key features, being its shape, thickness, weight or structure, and it can incorporate other non-chargeable processes carried out at the same time. Examples are extrusion, moulding, forming (i.e., when a sheet of plastic is shaped into packaging such as tubs and trays), layering and laminating, and printing. Disregarded processes include cutting (e.g., cutting film to size), blowing or otherwise forming a packaging component from a preform, sealing (for example attaching a film lid onto a tub), and labelling e.g., gluing a label to a tub (although the label may also be a packaging component which should be considered for PPT purposes);
- the importer (wherever established) of ‘finished’ plastic packaging components which are formally customs cleared into the UK (subject to future rules which may treat an import as occurring at another point). The importer will usually be the consignee on the import documentation, unless the consignee can demonstrate that they are acting on behalf of another business/principal who actually controls the goods and should otherwise be liable to PPT;
- Other parties "acting in the course of a related business” – they can become secondarily liable, or jointly and severally liable, when a taxpayer fails to pay the PPT and when the party knew or ought to have known that such PPT was unpaid. This could affect fulfilment businesses involved in transporting and storing chargeable plastic packaging and operators of online marketplaces. These businesses will need to conduct due diligence on their supply chains to ensure they are not at risk of challenge that they ought to have known that the PPT was unpaid and ensure they act on becoming aware of wrongdoing by a taxpayer. Based on the latest draft legislation published 4 November, HMRC may take into account several factors when issuing liability notices, such as the parties’ connected or contractual relationship, whether evidence was sought from the defaulting taxpayer on PPT compliance and assessed for reliability with reasonable care, the sufficiency of due diligence checks, whether any contract terms seek to ensure compliance with PPT payment obligations, the reasons for the other party’s possession of the chargeable components and their intended use, condition and value, the party’s conduct and cooperation with HMRC. Further HMRC guidance on PPT due diligence requirements is expected.
Penalties will apply for failing to comply with a relevant PPT requirement e.g., keeping records and payment, being an initial fixed £500 penalty plus a daily £40 penalty for continuing failures to comply, together with interest on late payments. Severe criminal penalties can arise in cases of fraudulent evasion of PPT and for misstatements and false documents and conduct involving such offences.
>> CLICK HERE to check if you need to register for PPT
Are there exemptions?
There are 4 categories of packaging exempt from the tax. They are products:
- used for the immediate packaging of licensed human medicine
- permanently recorded as set aside for non-packaging use
- used as transport packaging to import multiple goods safely into the UK
- used in aircraft, ship and rail goods stores
>> CLICK HERE for more information about PPT exemptions.
How to prepare?
It is essential that affected businesses start now to prepare for the PPT despite the fact that the legislation and HMRC guidance are still being finalised. Key action points include:
- Familiarisation with the new PPT rules and training for staff
- Supply chain review to identify the material used within packaging and consider changes to packaging in order to contain more recycled plastic above the 30% threshold.
- Contract review and consider price adjustments for PPT – should prices be inclusive or exclusive of PPT? – as well as information requirements for matters such as tax credit claims or to demonstrate a robust supply chain audit. The legislation allows for price adjustments in existing contracts if PPT later becomes chargeable or there is a change in the PPT chargeable.
- Registration with HMRC for PPT if the business (including a non-resident taxpayer) has produced or imported finished plastic packaging components (including filled packaging) in the UK above the 10 tonnes limit over the previous 12 months (starting from 1 April 2022 for the first year of PPT), which should be checked monthly. Registration will be required within 30 days of becoming liable to do so, even if all the packaging manufactured or imported contains more than 30% recycled plastic. PPT will be payable from the date the business becomes liable to register. The online service to register and pay will be available from April 2022. Businesses will also need to notify in future if they expect to exceed the 10-tonne threshold in a 30-day period post 1 April 2022. As above, some exempt packaging will still need to be included in the calculation towards the 10-tonne limit.
- Prepare for PPT compliance in completing filing and correcting quarterly tax returns and paying PPT on time.
- Adapt record keeping systems, accounts and processes to make sure the business can provide HMRC with the right information and evidence needed to establish if PPT is payable and how much. Plastic packaging will be assumed to not meet the recycled content test unless it can be shown that it does. For each quarterly return, records will need to show the total amount in weight and a breakdown by weight of the materials contained in the relevant plastic packaging manufactured in or imported to the UK, for example, production certificates and certificates of conformity or accreditations, as well as data and calculations used to determine if a packaging component is, for the most part plastic, and the proportions of recycled plastic content, which in certain circumstances may be calculated based on an indicative component of a production run or within a product line, and (where applicable) the weight of exempted, exported or converted plastic packaging qualifying for deferral relief or a tax credit. The legislation requires HMRC to provide guidance on what will amount to sufficient evidence of recycled plastic content, and also allows HMRC to assess the weight of packaging components to the best of their judgement and substitute their determination for any measurement or calculation of weight made.
- Be ready for business customers, and other businesses such as import agents, fulfilment houses or marketplaces to require information about the types and quantities of material supplied within packaging and/or to seek reassurance and contractual protections related to their suppliers’ PPT preparations and obligations
- Plan for future changes to B2B invoicing software – although HMRC has recently delayed the mandatory requirement for businesses liable to PPT to include a statement in their B2B invoices of their PPT payments, further information is to follow and meanwhile, businesses are encouraged to voluntarily disclose PPT payments to their business customers.
- Non-UK based businesses who import may need to look at appointing a UK-based representative for PPT compliance purposes – the legislation includes powers to make this obligatory.
- Consider PPT group registration (where available) - groups of companies under the same control and with at least one UK established company can appoint a UK established and resident representative member to register the group for PPT, submit group quarterly returns and pay PPT for group members. Special rules will also apply for business transfers as a going concern where the transferor’s PPT registration and duties, liabilities and rights existing at the point of transfer may transfer to a transferee.
Here at J&B Recycling we welcome the new plastic packaging tax and hope that it will achieve the desired result of creating a greater demand for recycled plastic, stimulating increased levels of recycling of plastic waste and diverting it away from landfill or incineration.