Manufacturers and importers of plastic packaging face a new green tax
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.
Published on 7th Mar 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.