The UK plastic packaging tax: are you ready?

On 1 April 2022, the new plastic packaging tax (PPT) comes into force. Manufacturers and importers of plastic packaging that falls within the scope of PPT (including products that are packaged in plastic) will need to register with HMRC and pay PPT at a rate of £200 per tonne. The rest of the supply chain will need to carry out robust due diligence checks to reduce the risk of being held jointly and severally liable for unpaid PPT. 

The new tax applies to finished "plastic packaging components", either manufactured in the UK or imported into the UK, in which less than 30% of the plastic is recycled plastic by weight. Companies that have manufactured or imported 10 tonnes or more of “finished” plastic packaging components within the last 12 months or the next 30 days will be required to register with HMRC. 

Many companies, particularly those selling food products and consumer goods, are likely to be affected. For example, an importer of a branded fizzy drink will be taxed in the same way as an importer of an empty bottle (which will eventually be filled with fizzy drink) because the tax applies to filled or unfilled packaging. 

Is your packaging taxable?

Deciding whether a specific packaging is taxable requires an assessment against primary and secondary legislation, as well as government guidance which is constantly being updated. 

Some key points to bear in mind when assessing packaging include:

• A "plastic packaging component" is taxable if it is made of more plastic by weight than any other material in the packaging. For example, a box which is made of a mix of plastic and cardboard will be taxable if the plastic component weighs more than the carboard. 
• Packaging should be assessed in terms of its individual components, all of which will be taxed separately. For instance, a bottle is often made up of three components: the bottle, the screw on lid, and the printed label. This means that different companies may be responsible for different components.  
• PPT is subject to exemptions, such as transport packaging or packaging which forms an integral part of the goods (for example, tea bags).  However, not all exempt packaging is also exempt for the purposes of deciding whether you have hit the 10 tonne threshold which triggers the obligation to register. 

Are you responsible for paying PPT? 

The legislation identifies UK-based manufacturers or importers into the UK as those primarily liable for PPT. However, companies that carry out a "substantial modification" or alteration to a packaging component (such as printing a brand name on a plastic label) may inadvertently become the "manufacturers" for that component.  

Although it is the UK-based manufacturer or importer that is primarily liable for PPT, the PPT legislation allows HMRC to make other members of the supply chain secondarily liable (or jointly and severally liable) for PPT where they knew, or ought to have known, the primary payer has not paid the PPT. 

Note that the person who is responsible for paying PPT can (subject to the terms of the agreement) seek to recover that cost by increasing its price to its customers, or negotiating a reduction in price from its suppliers, but you can't nominate someone else to be responsible to HMRC for the tax.

Osborne Clarke recommendations

Businesses involved in the manufacture, import or modification of plastic packaging should:

• Check they have effective data collection and reporting systems in place to determine whether their packaging is taxable and whether they need to register from 1 April 2022. 
• Carry out an internal audit of their products and packaging. What items are likely to be caught? Can they be future-proofed going forward, for example by choosing packaging made of over 30% recycled plastic?
• Implement a robust system of due diligence checks to ensure they know who in the supply chain is primarily liable for PPT. For example, businesses should ask their suppliers to sign a document confirming that PPT has been properly accounted for. 
• Consider any changes required in their contracts to establish who will absorb the cost of PPT and who will be liable in the event of non-compliance. 
• Engage with HMRC if they think a specific packaging component should be exempt from PPT but may be caught. 
• Consider how PPT returns will be made in the broader context of their tax compliance procedures.

Osborne Clarke can support you as you prepare for the new PPT. Get in touch.