Are you ready for the Plastic Packaging Tax?

The Plastics Packaging Tax is set to come into force from 1 April 2022. It applies to manufacturers and importers of plastic packaging, but could also affect retailers, freight transport providers and fresh food producers.

Under the new legislation, plastic packaging which contains less than 30% recyclable material will be subject to taxation of £200 per tonne. 

All businesses that have manufactured or imported more than ten tonnes of plastic packaging over the last twelve months will be required to register for the Plastic Packaging Tax.

HMRC will apply fixed or daily penalties for failure to comply with the new legislation. Guidance published in February included registration advice and tests to carry out to determine when and how to register for the plastic packaging tax.

Under the guidance:

• Businesses are required to register for the tax and pay it, within 30 days of becoming liable.
• The two tests businesses should carry out to determine tax liability include:
  • Look back over the previous twelve months to ascertain if the ten-tonne threshold has been reached.
  • Look forward to the next thirty days to ascertain the likelihood of manufacturing or importing more than ten tons of plastic packaging within that timeframe.

Plastic packaging that comes into direct contact with medicines (such as blister packs for tablets) or containers designed to be used with the goods throughout their lifetime (such as power tool boxes), are exempt from the tax.

This legislation is likely to create added administrative and cost burden on affected businesses. We spoke to accountants to find out what businesses need to know about the plastic packaging tax and how they should best prepare for it.

Identify PPT liability and create tax-compliant systems and processes

Grace King, indirect tax manager, RSM UK

In terms of the effectiveness of the new legislation in the short term, it’s possible that switching to plastic packaging with a higher recycled content may be more expensive than sticking with virgin plastics and paying PPT.

However, as HMRC begins to tighten the net on PPT in the future, more businesses are likely to fall into the scope of PPT, and the financial cost is likely to be higher, which may encourage a gradual move towards high recycled content in plastic packaging.

To prepare, businesses should take the following action.

• Carry out an assessment of whether and to what extent they will be liable for PPT.
• Review supply chains to consider whether efficiencies can be achieved.
• Create systems to ensure compliance with the new record-keeping requirements.
• Decide who will be responsible for PPT compliance.
• Prepare staff training in relation to the new rules.

Next steps: Affected businesses will need a process to prepare the PPT returns. Those who purchase plastic packaging should add a PPT section to their supplier/customer on-boarding process to determine the due diligence needed on current suppliers around PPT legislation.

Verdict: Carry out assessments around PPT liability and put systems and processes in place to remain compliant. 

Businesses should conduct an audit of their imported or manufactured products to determine PPT liability

Gerry Myton, partner, HW Fisher

PPT is in effect, an environmental tax that aims to change behaviour and increase recycling.

PPT is payable on the date that the packaging is finished or imported. Once registered for PPT, a business must submit returns for calendar quarters and any tax must be paid within 30 days of the quarter end.

Businesses need to consider their packaging strategy as soon as possible. They will need to undertake a review of supply chains to assess business impact and review products manufactured or imported to determine PPT liability.

Next steps: Business may want to consider these questions:

• Do your contracts allow for the cost to be passed on and how does the tax impact on margins?
• Do you have the correct systems in place to capture the information to comply fully as of 1 April 2022?
• In your business, which team will have responsibility for compliance?
• What due diligence processes will be put in place to ensure that you avoid becoming jointly and severally liable for the non-compliance of others?

Verdict: Businesses must undertake a review of manufactured or imported plastic packaging to determine PPT liability.

Every affected business needs to maintain accurate records – even if they’re below PPT threshold

Andrew England, tax partner, Menzies LLP

PPT will lead to an increased administrative burden, particularly for food manufacturers. Those that consume over 10 tonnes of plastic per year will need to register for the tax even if they are not eventually liable to pay it. This includes importers of packaging that already contains goods, for example, plastic drinks bottles. Companies will also be required to provide declarations within customer invoices, confirming that the new tax has been paid.

Manufacturers that are close to HMRC’s threshold should consider potential changes they can make to the packaging they manufacture or import. Close collaboration with suppliers can provide organisations with a better chance of reducing their plastic usage. Finding innovative solutions for increasing the volume of recycled plastics used could also make businesses eligible to claim valuable R&D tax incentives.

Next steps: All food manufacturing businesses should keep accurate records of the packaging they manufacture or import, even if it contains more than 30 per cent recycled plastic. Businesses manufacturing or importing less than 10 tonnes of plastic packaging a year will still need to maintain records, showing that they are below the threshold, in case of future HMRC investigations.  

Verdict: Every impacted business needs to maintain accurate records even if they’re below PPT threshold.

Businesses must assess supply chains to determine which are likely to be affected – and make changes accordingly

John Carter, senior tax manager, Prime Accountants Group

PPT will affect the majority of companies in sectors such as consumer goods, online retail, pharmaceutical and cosmetics to name just a few. There are exemptions however, including transport packaging used on imported goods, or packaging used in aircraft, ship and rail stores for example.

Next steps: Businesses need to assess the impact of PPT on their business by assessing supply chains to determine which are affected. They also need to implement systems and assign roles and responsibilities, at the same time introduce the required changes to systems to enable the necessary data collection and reporting requirements to be met.

Verdict: Businesses must assess supply chains to determine which are likely to be affected and to make changes accordingly.

Annie Makoff is a freelance journalist and editor.