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The new Plastic Packaging Tax – some unexpected challenges for business

  • Market Insight 12 May 2021 12 May 2021
  • UK & Europe

  • Tax

The finance bill currently working its way through parliament contains a brand new, world-first, tax on plastic packaging. Like the carrier bag charge and sugar tax, this tax is intended to encourage a change in behaviour rather than raise revenue. 

The environmental aims of the tax are to be commended, as Plastic packaging is doubtless a major cause of waste going to landfill. However, there are a number of aspects of the tax that could potentially create real practical challenges for all businesses – particularly importers.

What does the tax cover?

Plastic Packaging Tax imposes a fixed rate of £200 a tonne on plastic packaging produced in, or imported into, the UK.

In keeping with its green credentials, the tax will not be charged on plastic packaging that contains at least 30% recycled plastic. However, greener plastics such as those produced from plants, or compostable plastics are still subject to the tax. The Government says it is keeping this point under review, but it seems to go against the environmental aims of the tax.

The tax incudes ‘packaging that does not fulfil a packaging function until used by the end consumer’. In other words, cling-film is still taxed.  And if you bought reusable Tupperware tubs to avoid using cling film? Those are still covered too. For a tax aimed at changing behaviours, there seems to be a fair amount of scope for raising revenue.

Why should importers be worried?

The tax doesn’t just apply to specific imports of packaging material, it also applies to packaging that has already got something in it. This means that any goods that are imported may give rise to a tax liability, depending on how the goods are packaged. Importers will need to become experts at spotting which products come in packaging which is, by weight, more plastic than anything else. The tax applies to each ‘packaging component’ so every piece of packaging has to be considered separately.

There is a ‘de-minimis’ threshold – businesses that manufacture or import less than 10 tonnes of plastic packaging annually will not need to register. Businesses will need to periodically look back at their last 12 months and decide whether they have exceeded the threshold, as well as whether they will exceed it in the next 30 days.

How businesses are supposed to do this without keeping comprehensive records of all the plastic packaging they encounter is not clear, but the Government has promised guidance that will include ‘guidance of what 10 tonnes of plastic packaging looks like, across a range of packaging types’.

Importers will also need to obtain evidence that any plastic packaging their suppliers tell them is recycled, is in fact recycled.

What about businesses who don’t import anything?

Businesses that buy goods from UK suppliers should have less to worry about, as it is the packaging manufacturers and importers who are primarily liable. There are however a couple of pitfalls to be careful of.

Firstly, the legislation contains a statutory right for the supplier of packaging to adjust the amount of contractual payments under existing contracts in order to pass on the tax to the customer. Businesses will therefore need to ensure contracts clearly state whether prices are ‘ex PPT’ or ‘inc PPT’.

Secondly, the legislation allows HMRC to impose liability on any business in the packaging supply chain where that business knows “or ought to know” that the producer or importer hasn’t paid their Plastic Packaging Tax. The Government has not published detailed guidance but has indicated that they will expect customers to take ‘reasonable steps’ to verify the position. Businesses will often not have any simple way of, for example, checking the proportion of recycled material in plastics, so there is a risk of being inadvertently exposed to liability.

The tax team at Clyde and Co would be happy to help with any tax-related issues your business may have.



Additional authors:

Malcolm Frost

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