Out-Law Analysis 2 min. read

HMRC to impose penalties for plastic packaging tax non-compliance

With the reporting deadline for the end of the first year of the UK’s plastic packaging tax (PPT) fast approaching, HM Revenue and Customs (HMRC) has confirmed that its initial informal ‘soft-landing’ for penalties is coming to an end.

Although the legislation has been in place since the introduction of the tax in April 2022, HMRC has, for the most part, not been issuing penalties to non-compliant taxpayers. Instead it has focused on assisting taxpayers to become compliant. Now that this period is coming to an end, HMRC has issued a new guide to the penalties that will apply in future.

The penalties for non-compliance with PPT fall into three broad categories:

  • standard penalties for tax non-compliance, e.g. late payment;
  • PPT-specific penalties; and
  • criminal offences.

Standard penalties for PPT non-compliance

The ‘standard’ penalties for tax non-compliance that have been specifically extended to cover PPT are failure to notify liability to the tax; late or failure to make returns; late payment of the tax; and for inaccuracies in returns.

A person that should have notified their liability to be registered for PPT and fails to do so – or does so late – is liable for a penalty that is calculated as a percentage of the ‘potential lost revenue’ (PLR). The PLR broadly means the amount of PPT that should have been included in a tax return and paid but was not because the person had failed to notify HMRC. The percentage applied depends, among other things, on the level of culpability of the taxpayer.

A taxpayer that files their quarterly PPT return late is liable for a penalty of £100. However, that initial penalty amount increases to £200 if a second quarterly return is late within a 12-month period, further increasing to £300 and £400 for a third and fourth late return. If the returns remain outstanding for six months, a second penalty arises of 5% of the amount that would have been shown on the return, with a minimum charge of £300.

A third penalty of the same amount arises if the return remains outstanding for 12 months. At the 12-month point, if the taxpayer is found to have deliberately withheld the information, the penalty rises to 70% of the tax if the withholding is deliberate but not concealed and 100% if the withholding is deliberate and concealed.

A taxpayer that pays the PPT due late, even if their returns and registration are compliant, is liable to a penalty of 5% of the unpaid tax, with a further penalty of 5% if it remains outstanding after five months and again after 11 months.

PPT-specific penalties

A taxpayer that submits a PPT return that contains a careless or deliberate inaccuracy that leads to an understatement of tax – or an inflated loss or claim – is liable to a penalty of a percentage of the PLR. Again, the percentage applied depends on the behaviour and culpability of the taxpayer.

A taxpayer that does not comply with a specified list of PPT obligations is liable to an initial penalty of £500 plus a daily penalty of £40. These matters include the preservation of PPT records and appointment of representatives for non-resident taxpayers.

Criminal offences for PPT non-compliance

Finally, there are potential criminal offences for particularly egregious behaviour. Some of these offences are specific to PPT, such as fraudulent evasion of PPT and knowingly making false statements regarding PPT. However, some general tax offences also apply to PPT, including the failure to prevent the facilitation of tax evasion.

The next filing deadline is 31 July 2023 and will cover the period from 1 April to 30 June 2023. Any taxpayers in any doubt as to their position should make sure that they take advice to get compliant in order to avoid these penalties.

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