Is your business prepared for the incoming Plastic Packaging Tax (PPT)?

What is the Plastic Packaging Tax (PPT)?

The Plastic Packaging Tax (PPT) comes into effect in the UK from 1^st April 2022 putting a £200 per tonne tax on plastic packaging that contains less than 30% recycled plastics. 

An online portal to register for PPT will also open on this date.

It is designed to provide an incentive for businesses to use recycled plastics in their manufacturing process of plastics packaging. The idea is to create a larger market for recycled plastics, increase rates of recycling, and diversion of plastic materials from landfill or incineration.

Does Plastic Packaging Tax apply to my business?

Your business is required to register for PPT if it has manufactured or imported 10 or more tonnes of finished plastic packaging components (even if those components are exempt or non-chargeable) within:

• the last 12 months; or
• will do so in the next 30 days (any time after 1^st April 2022).

However, all businesses should keep the necessary records for PPT to monitor and ensure the business does not fall within the threshold.

What are finished plastic packaging components?

Plastic Packaging Tax only applies to “finished” products.

Finished plastic packaging components are products that:

• are suitable for use, in the containment, protection, handling, delivery, or presentation of goods at any stage in the supply chain (e.g. ready meal trays, film around raw meat, yoghurt pots);
• are designed to be suitable for single-use by the consumer (e.g. plastic bags, disposal cups, gift wrapping);
• are incorporated in packaging materials that are made predominantly from plastic according to the methodology set out by HMRC and are generally manufactured separately before assembling into the packaging (e.g. trays, boxes, caps and labels); and
• have undergone their final ‘substantial modification’ to turn them into packaging.

What are recycled plastics?

For PPT, plastic means a polymer material to which additives or substances may have been added (including polymers that are biodegradable, oxo-degradable and compostable).

Recycled plastic will have been reprocessed from recovered material by using a chemical or manufacturing process so that it can be used for either its original purpose or another purpose.

Recovered material must have:

• been collected and recovered for use as a material input for a recycling or manufacturing process; and
• otherwise been used for energy recovery or disposed of as waste.

Are there any exemptions or exclusions to the Plastic Packaging Tax?

There are three categories of products that will not be subject to the tax:

1. products designed to be suitable to contain goods at the time of sale to the consumer or user; or
2. products designed where the packaging is an integral part of the goods and are necessary to enable the goods to be used by the end-user/consumer; or
3. products designed to be re-used and have been permanently set aside for this purpose.

Four exemptions that are not included in the tax regime:

1. packaging that is used for packaging of a medicinal product;
2. transport packaging (tertiary packaging only, not primary or secondary packaging);
3. packaging that is used as aircraft, ship and rail stores; or
4. components that are permanently designated or set aside for use other than packaging use.

What should I do to prepare my business for PPT?

Businesses should:

• ensure the decision-makers and those responsible for PPT compliance in the business understand the details of the legislation;
• assess whether it will be liable to PPT by analysing the quantity and nature of the plastic packaging materials imported or manufactured;
• check the records the business keeps of the weight of plastic packaging it imports, manufacturers and the content of this plastic packaging;
• review supply chains to consider whether efficiencies can be achieved (and speak with suppliers and customers in this respect);
• switch to recycled materials;
• create systems to ensure compliance with the new record-keeping requirements;
• decide who will be responsible for PPT compliance within the business;
• if your business is not primarily accountable for PPT, put in place mechanisms to ensure that those primarily accountable to PPA in the supply chain demonstrate that they have complied with their obligation to pay PPT;
• decide how the cost of PPT shall be apportioned through the supply chain; and
• prepare staff training.

Who will carry the liability?

The business (based in the UK) which performs the last substantial modification before the packing or filling process will be liable to pay PPT. A business that imports plastic packaging components that have already undergone their last substantial modification will be liable for PPT.

Although it is the importer or manufacturer of packaging components that are primarily liable for PPT, others in the supply chain can be made secondarily liable, or jointly, and severally liable for the tax where they know or ought to have known that Plastic Packaging Tax has not been paid.

Is due diligence required?

Due diligence about the manufacturer or importer of components may be required.

Manufacturers should carry out due diligence on the suppliers of their recycled plastic and contracts should be tailored to ensure the manufacturer can obtain the necessary confirmations.

Importers or purchasers should carry out checks, including:

• requesting confirmation of tax status from their suppliers;
• obtaining signed documents from suppliers showing PPT has been accounted for;
• requesting product specifications;
• conducting physical inspections and audits; and
• checking details against other sources.

What is important to consider in supply contracts?

Existing supply contracts for plastic packaging components may need to be reviewed and if necessary amended. New supply contracts should be drafted so they are sufficiently clear to determine which of the contracting parties is accountable for Plastic Packaging Tax.

Manufacturers and importers supplying plastic packaging components will want to pass on the cost of PPT to their customers – the contractual provisions will have to address this. Existing contracts may need to be reviewed and varied accordingly. New contracts will need to set out how PPT is factored into the overall pricing and whether any prices set out include or exclude PPT.

Where contracts for the supply of plastic packaging components are silent on PPT, the manufacturer or importer may want to review the contract to identify a contractual mechanism to enable it to increase the price, for example, due to change in law or change in tax provisions.

A party receiving the supply of plastic packaging components may want to seek contractual assurance from the manufacturer or importer that PPT is being accounted for by the manufacturer or importer.

What information will I need to collect for Plastic Packaging Tax?

To show that plastic packaging imported or supplied contains at least 30% recycled plastic, the company must either:

• provide evidence from the manufacturer of the plastic packaging (such as production specifications, contracts, quality assurance audits or invoices); or
• prove that the company (or a competent third-party) have a robust supply chain audit that can provide this evidence.

The company must also keep accounts showing how you’ve worked out each entry on the quarterly tax return. There is useful guidance on the HMRC website.

Where relevant, the accounts (filed quarterly) must include a breakdown of the weight of plastic packaging components finished or imported in each period, and for where credit is claimed if the packaging has been exported or converted into new packaging components.

What will happen if I don’t pay Plastic Packaging Tax?

Like VAT, PPT is regulated by Her Majesty’s Revenue and Customs (HMRC). Significant financial penalties will be imposed on companies for deliberate or unintentional non-compliance and/or for providing inaccurate information.

HMRC has published useful guidance on getting your business ready for PPT.

For more information about how Clarion can help your business with the Plastic Packaging Tax implications, please get in touch.