Rechtsanwältin, Senior Associate
Out-Law Guide | 07 Jan 2022 | 2:44 pm | 7 min. read
A new tax on plastic packaging manufactured in, or imported into the UK, that does not contain at least 30% recycled plastic is being introduced from 1 April 2022.
Manufacturers or importers of plastic packaging, including importers of packaging which already contains goods, will need to take action to prepare for the new tax.
The rate of tax will be £200 per metric tonne of plastic packaging.
Plastic packaging tax (PPT) is an environmental tax designed to provide a financial incentive for businesses to use recycled plastic in the manufacture of plastic packaging. The government envisages this will create greater demand for recycled plastic, stimulating increased levels of recycling of plastic waste and diverting it away from landfill or incineration.
Minor changes to the PPT legislation were announced in the Autumn 2021 budget and the government is consulting on the regulations which deal with how the tax is administered. These regulations also cover methods for weighing plastic packaging components and the requirements for maintaining, producing evidence of and calculating recycled material in plastic.
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. It only applies to ‘finished’ products.
A ‘packaging component’ is a product that is designed to be suitable for use, whether alone or in combination with other products, in the containment, protection, handling, delivery or presentation of goods at any stage in the supply chain of the goods, from the producer of the goods to the consumer or user. This is a wide definition which will catch items which may not be thought of as packaging such as coat hangers. It also covers reusable and refillable items such as plastic crates and intermediate bulk containers (IBCs).
If the packaging component meets the definition, it does not matter if it is produced or imported for use in the supply chain of the goods, or by a consumer or user.
Imports of packaging which already contains goods, such as plastic bottles filled with drinks or plastic packaging around goods, will also potentially be subject to the tax with some exclusions. They include filled packaging components with a primary storage function, such as glasses cases or DVD cases; and where the packaging is an integral part of the goods, such as printer cartridges or tea bags.
PPT is not charged on plastic packaging which is designed to be reused for the presentation of goods such as shop fittings or sales stands.
Products will also be subject to PPT if they are designed as single use packaging products for use by a consumer or user in containing any commodity or waste. This will mean that plastic bags, bin liners, nappy sacks, disposable cups and such like will be subject to PPT.
Even though the tax is designed to have environmental benefits, plastic includes biodegradable, compostable and oxo-degradable plastics.
Each component needs to be considered separately. For example for a plastic drinks bottle you would need to consider the bottle itself, the lid and any plastic label separately.
Packaging that contains multiple materials but contains more plastic by weight than any other single substance will be a plastic packaging component for the purposes of the tax. For example, if a 10-gram item of packaging is made up of four grams of plastic, three grams of aluminium and three grams of cardboard, all 10 grams will be considered plastic packaging for the purposes of the tax.
The producer or importer will need to be able to demonstrate to HM Revenue & Customs (HMRC) that a packaging component which contains plastic is not subject to the tax. If they cannot demonstrate this, the component will be treated as entirely plastic. Records will need to be kept as to the materials used in the manufacturing of the packaging and the weight of each material. Draft regulations have been published for consultation which deal with methods for weighing plastic packaging components and the requirements for maintaining, producing evidence of and calculating recycled material in plastic.
A plastic packaging component is chargeable only when it is ‘finished’. A component is finished if it has undergone its last substantial modification, or in cases where the last substantial modification happens when the component is packed or filled, its last substantial modification before being packed or filled.
Any process that changes the shape, thickness, weight or structure of a packaging component will be a substantial modification.
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.
Four types of packaging component are exempt from the tax, regardless of how much recycled plastic they contain. These are:
There is also a deferral of liability to the tax for plastic packaging which is exported that meets the direct export condition.
Plastic packaging manufactured or imported for use in the immediate packaging of a medicinal product is exempt from PPT. For these purposes a ‘medicinal product’ is either any substance or combination of substances:
Veterinary medicines are not exempt. ‘Immediate packaging’ is the container or other form of packaging immediately in contact with the medicinal product.
It is important to note that even if the exemption applies, it is necessary to include exempt packaging in assessing whether more than 10 tonnes of plastic packaging is manufactured or imported in a 12-month period to establish whether the business needs to register for the tax.
Where plastic packaging is intended for export, payment of the tax can be deferred for up to 12 months as long as certain requirements are met. If the packaging is exported within the 12-month period, the liability for PPT is cancelled.
Manufacturers or importers of 10 or more tonnes of plastic packaging over a 12-month period must register for the tax. Plastic packaging which contains at least 30% recycled plastic or is exempt from the tax because it is used for medicinal products or is set aside for a non-packaging use must still be factored into the total to determine if a business must register for the tax.
Registration is required if:
If either of these conditions is satisfied, registration is required even if a business’ packaging is not chargeable and it does not have to pay any tax.
HMRC has published guidance on how to register for PPT – although this cannot be done until 1 April 2022.
Businesses based outside of the UK must be registered for and pay the tax if they import plastic packaging into the UK.
Quarterly returns will be required. Businesses which are members of a group of companies will be able to appoint a representative member of the group to submit returns and pay the tax for the whole group. HMRC has published guidance on group registration. HMRC is consulting on the draft regulations dealing with the administration of PPT.
The legislation provides that a manufacturer or importer of plastic packaging which is liable for PPT must show on any invoice issued to a business customer the amount of PPT that has been paid on the packaging concerned.
However, HMRC updated its guidance in October 2021 to say that this requirement will not be introduced from April 2022, although it hopes that manufacturers or importers will provide this information on a voluntary basis.
PPT needs to be taken into account in contracts as suppliers or importers of plastic packaging components will want to be able to pass on the cost of PPT to their customers. New contracts need to factor PPT into the pricing and should specify whether prices are inclusive or exclusive of PPT.
The legislation provides a limited right to increase the price under an existing contract for PPT that becomes later payable. Where a person supplies a chargeable plastic packaging component that it has produced, or that was imported on its behalf to another person under a contract and a payment is due under the contract for the supply of the component, the supplier can increase the payment due under the contract to reflect the PPT due. This only applies if, after the contract is made, PPT becomes chargeable or there is a change in the PPT chargeable.
Although it is the importer or manufacturer of packaging components that is primarily liable for PPT, others in the supply chain can be made secondarily liable or jointly and severally liable for the tax where they know or ought to have known that PPT has not been paid.
The provisions apply not just to those involved in the production or importation of the packaging components but also those involved in transporting or storing products and operators of online marketplace or fulfilment businesses.
This secondary liability and joint and several liability provisions mean that any related business needs to conduct due diligence to ensure that it cannot be said that it ought to have known that PPT was not paid.
Businesses should carry out due diligence checks to establish the integrity of their suppliers. Businesses whose liability to PPT depends on actions of their customers will also need to carry out due diligence on their customers. For example, where the business relies on information from its customers to claim it is not liable to register or account for PPT or to claim any tax credits.
HMRC has issued guidance on the due diligence required. However, it does not provide a list of checks that must be carried out, only examples of appropriate checks. Each business must decide what checks are relevant, reasonable and proportionate depending on their circumstances.
Due diligence may be particularly difficult in relation to imported packaging.
Businesses will need to keep records of the due diligence checks they have made. This is in addition to the records businesses will be required to keep for PPT. See HMRC guidance on record keeping for further details.
HMRC has published general guidance on getting your business ready for PPT.
07 Jan 2022
Rechtsanwältin, Senior Associate