Weighing up the Plastic Packaging Tax
The Plastic Packaging Tax came into force on 1 April 2022.
What is it?
The Plastic Packaging Tax is a new tax applicable to plastic packaging components. The charge for the tax, at a rate of £200 per tonne, arises when the component is imported into or produced in the UK by a person acting in the course of a business.
Who and what does it apply to?
The tax only applies to “finished” plastic and mixed-plastic packaging components (containing mostly plastic by weight), designed to be suitable for use in the supply chain or single use by a consumer.
The UK business that undertakes the last substantial modification before the packing or filling process will be liable for the tax, as that will modification is deemed to create the “finished” component. For example, a component may be “finished” by the forming of plastic to create a tray, the moulding of plastic to make a bottle lid, or the layering of labels. However, the cutting of an already formed tray, the sealing of a film lid or the application of a label will not necessarily amount to “substantial modification” finishing the component.
The tax catches more than just “traditional” packaging, as the definition of a ‘packaging component’ includes products for use in the containment, protection, handling, delivery, or presentation of goods. For example, the UK Government indicates that bottle caps, some clothes hangers, disposable cups, and food crates will be subject to the tax. However, it will not apply to packaging for use in immediate packaging of medicinal products, transport packaging, packaging used as aircraft, ship and rail stores and components permanently designated for a non-packaging use. For example, reusable coffee cups, home storage boxes, cutlery and video game cases will not attract the tax.
To manage the administrative burden against the tax liability, the tax only applies to manufacturers and importers of finished plastic packaging components exceeding 10 tonnes. The UK Government estimates that 20,000 manufacturers and importers of plastic packaging will be impacted, with an average annual net increase of £400,000 in continuing administrative burden resulting.
The tax also does not apply where the plastic packaging components contain more than 30% recycled plastic. However, it does apply to biodegradable, compostable and oxo-degradable plastics.
There are also other specific exemptions and caveats, outside the remit of this note, which may vary the extent or application of the tax obligations.
Why was this introduced?
In the 2017 Budget, the UK Government announced a call for evidence to tackle single-use plastic, then launching a consultation, decisions, and eventually draft legislation in November 2020 for a tax on plastic packaging, then incorporated in the Finance Bill 2021, receiving Royal Assent on 10 June 2021.
The aim of the tax is to create an economic incentive for businesses to use recycled plastic, creating greater demand for recycled material and stimulating collection and recycling of plastic waste. The UK Government also expects additional tax revenue of £200-£235m per year, gradually reducing with an expected dip in the use of non-recycled plastic packaging.
Whilst the UK government did not expect the tax to have any macroeconomic impact, we are aware of global supply chain issues causing a squeeze on the availability of recycled plastic, as well as general difficulty obtaining raw materials. This may place a premium on recycled plastics beyond that envisaged by a general surge in demand as a result of the tax.
What will I need to do?
Manufacturers or importers of at least ten tonnes of plastic packaging over a 12-month period must register for the tax, even if the packaging is not chargeable to the tax, for example due to the composition of recycled material. Returns must then be made quarterly.Group companies may delegate responsibility for submitting returns and paying the tax to an authorised representative.
A requirement to include a statement on invoices to busines customers showing that the Tax has been paid will be delayed, though the UK Government encourages making such a statement to try and increase the amount of recycled plastic used.
Record-keeping is vital to ensure that the correct tax is paid, particularly so with mixed-material components. If you cannot demonstrate to HM Revenue & Customs that such a component is not subject to the tax, it will be treated as though its whole weight is plastic, increasing liability for tax. Records must be kept of the materials used in manufacturing the component, including its weight and calculation of composition.
Any business interacting in a supply chain including plastic packaging will need to ensure that their due diligence accounts for the new tax. This is because, whilst primary liability for the tax will sit with the importer or manufacturer, others may be secondarily liable or jointly and severally liable for the tax where they knew or ought to know that the tax has not been paid where it ought to. Therefore, it is crucial to determine who is making that payment within the supply chain and be assured that payment is being made. It would be prudent to ensure that business contracts reflect this risk, with appropriate warranties, indemnities, and requirements to provide information.
The tax sits alongside, and does not replace, existing packaging obligations. For example, the Packaging (Essential Requirements) Regulations 2015 and Producer Responsibility Obligations (Packaging Waste) Regulations (as amended) will continue to apply, which have the similar aim of reducing the amount of packaging produced and sent to landfill and increasing the amount that is recycled. Those regulations require businesses meeting specified production thresholds to register, fulfil recycling obligations and provide evidence of this, or face prosecution and/or a fine.
The UK Government has also recently announced decisions on plans for Extended Producer Responsibility, which would require producers to bear the environmental costs associated with a product throughout the product life cycle, will be phased in from 2024. Granular detail is awaited on the regulations to be introduced, though we expect that this will significantly vary obligations throughout the supply chain.