‘Significant grey areas’ as UK plastic packaging tax comes into force

Clara Boyd of Pinsent Masons said that “due diligence, evidence gathering and record-keeping” would be needed by these businesses as the full implications of the tax become clear. Although the plastic packaging tax (PPT) is primarily aimed at manufacturers and importers of plastic packaging, Boyd said that other businesses involved in supply chains could potentially face secondary liability or joint and several liability for unpaid tax.

“There remain significant grey areas around the new tax, and it’s likely that further problem areas will emerge as businesses look to apply the new legislation in practice,” she said.

“HMRC published new force of law guidance on technical and administrative issues only last week and has been issuing a myriad of updates to its other guidance over the past few weeks. It is only as businesses try to apply the legislation to real life products and situations that the problem areas emerge and HMRC realises it needs to provide more clarity,” she said.

“In the beginning, HMRC is likely to apply a light touch to those who make innocent mistakes, but it has strong powers which can be used if deliberate evasion of the tax is suspected,” Boyd added.

PPT is an environmental tax designed to provide a financial incentive for businesses to use recycled plastic in the manufacture of plastic packaging. It is charged at £200 per metric tonne on plastic packaging manufactured in, or imported into, the UK that does not contain at least 30% recycled plastic. PPT is payable by businesses that manufacture or import 10 tonnes of plastic packaging or more per year although some packaging included in the threshold, such as that used in the immediate packaging of a human medicinal product, is exempt from PPT.

While the tax only applies to “finished” products which are “packaging components”, Boyd said that the legislation “is very widely drafted in terms of the products falling within its remit”.

“For example, as well as single use disposable products, such as bin bags, it catches any 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 from the producer of those goods to the end user or consumer,” she said. “That catches many more things than you would think of as ‘packaging’ – particularly the part that talks about ‘presentation of goods’.”

PPT is payable by the UK business which performs the last ‘substantial modification’ to the packaging component before the packing or filling process, or by the UK business which imports components that have already undergone their last substantial modification. However, others in the supply chain – including those involved in transporting or storing products or fulfilling orders – 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.

Boyd said that these businesses would need to conduct sufficient due diligence to protect against a future finding of liability.

“Evidence gathering and record-keeping will be key,” she said.

“HMRC has not set out exactly what due diligence should be undertaken because it will depend on what is reasonable and proportionate in the circumstances. Although this is not an uncommon approach for HMRC to adopt, it places a significant burden on businesses to determine the appropriate measures to adopt in their own particular case in order to mitigate against the risk of being held liable for any unpaid PPT elsewhere in their supply chains,” she said.