A brand new tax on plastic packaging will be introduced in the UK with effect from 1 April 2022. The aim of the tax is to incentivise the use of recycled material in the production of plastic packaging.
The draft primary legislation (which was introduced in the Finance Bill 2021) provides that the tax will apply at a rate of £200/tonne on plastic packaging with less than 30% recycled plastic manufactured or imported into the UK (including packaging on goods which are imported).
The tax will affect a very wide range of businesses due to its broad scope. Crucially, registration for PPT will be required even if a business meets the 30% recycled content threshold and does not need to pay any tax. Impacted businesses therefore need to be aware of and start preparing to meet their compliance obligations well in advance of 1 April 2022 and many are already doing so.
The EU introduced a plastic packaging levy on Member States (not businesses) at a rate of €800/tonne on 1 January 2021 based on the amount of plastic packaging placed on their own markets. We expect that this will encourage Member States to speed up their own development and introduction of plastic taxes to fund their liability to the EU. It may also prompt existing proposals to be reviewed and adjusted to match the proposed EU rate.
Italy is introducing a tax of €450 per tonne on virgin plastic used in manufacture or importation of single use which has been deferred to 1 January 2022.
Spain has also proposed a tax of €450 per tonne on non-reusable plastic packaging from 1 July 2021. However the start date is expected to be delayed to late 2021/early 2022.
It is easy to forecast that developments within the EU which result in a tax charge, which is comparable to an import tariff on certain goods, may prompt other non-EU territories to adopt similar measures to avoid distortion of trade.
Any business that imports into the UK, or manufactures in the UK, plastic packaging or products contained in plastic packaging will be liable to register for PPT and pay any tax due if they exceed the threshold of 10 tonnes of plastic packaging per annum. Credits will be available for exported packaging, including on packaged goods.
This will affect the majority of companies in the following sectors, amongst others:
Businesses will need to assess their supply chains and work out who in that chain will be responsible for accounting for the tax.
The scope of UK PPT is particularly broad and will apply to finished, filled or unfilled, plastic packaging components with less than 30% recycled plastic.
A component is considered a plastic packaging component if it contains more plastic by weight than any other product. A plastic packaging component will be considered to be ‘finished’ if it has undergone its last substantial modification.
PPT will not be payable if the manufactured or imported goods or packaging:
There are registration, record-keeping, evidence and sampling requirements. Businesses need to ensure they have adequate evidence to defend their filings including adequate supply chain due diligence, even where no tax is due, and effective sampling procedures where appropriate.
Supply chain due diligence and detailed evidence of recycled content will be required to defend and support the tax decisions for components that contain more than 30% recycled content. This is required at a component by component basis at production run level, even for imported goods.
There are also invoicing requirements where taxable plastic packaging components are supplied to a business customer by the person who paid the tax. This includes the sale of packaged goods where the person making the sale was the one who paid the tax on the packaging. Therefore systems and controls may need to be adapted accordingly and it takes time to do.
PPT will create a need for systems and processes to collate data for compliance, pricing, contracts, and supply chains. These things take time to deal with, which means that businesses need to start planning now for their strategy for dealing and complying with the tax.
In our experience, many businesses are already considering their packaging strategy, but often that doesn’t involve all the business stakeholders or the data points needed for compliance with the new proposed taxes. Key business stakeholders should also be involved in the conversation in order for effective systems to be implemented.
Critical actions that businesses should be considering now include: