Plastic Packaging Tax – what you need to know

Published by Colin Laidlaw on 11 January 2022

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In an effort to reduce the amount of single use plastic being brought/manufactured in the UK, the government has imposed a new plastic packaging tax (PPT). The aim of the tax is to make it more desirable to use recycled plastic in packaging and encourage businesses to move away from single use plastics.

This tax will commence on 1 April 2022, but this does not stop us getting prepared.

This article sets out who it concerns, what you need to do to prepare and what your business will need to do to comply with the new plastic packaging tax.

This is an overview of the tax and not all exempt and taxable plastic packing is mentioned in this article. Specialist advice is needed if you operate in this area.

Who does the new tax apply to?

This tax will apply to any business undertaking the manufacture or importation of 10 tonnes or more of finished plastic packaging into the UK

It does not apply to:

  • Plastic packaging with 30% or more recycled plastic
  • Packaging that is not predominantly plastic by weight

Packaging imported into the UK will be taxed whether it is used to package goods or not.

Basis of the tax

A business will be liable to register for the Tax once it has manufactured/imported over 10 tonnes of plastic packaging or expects to exceed this in the next 30 days alone. The tax will be charged at a rate of £200 per tonne.

There are 2 types of packaging subject to the tax, these are packaging that is suitable for

  • Use in the supply chain
  • Single use consumer plastics

It is important to check if the plastic packaging component you produce or import is subject to the tax.

For the purposes of the tax plastic is considered as a polymer to which additives or substances may have been added but does not include cellulose-based polymers that have not been chemically modified.

Plastic also includes polymers which are biodegradable, compostable or oxo-degradable. A substance that is made of multiple materials but includes mostly plastic by weight is also considered plastic.

The tax will only apply to the plastic packaging components when they are completed. Components are finished when they undergo their final substantial modification. These are considered as manufacturing processes that significantly change the features of the packaging, such as:

  • shape
  • structure
  • thickness
  • weight

It should be noted that not all manufacturing processes are substantial modifications.

If the packaging is to be exported outside the UK, payment of the tax can be deferred by 12 months. If the plastic packaging is exported then you are not required to pay the tax – records must be kept of the weight of the packaging exported and the date it was exported.

If you incur tax on the manufacture or import of packaging that is later exported by someone else, you can claim relief for up to 2 years from the date you manufactured or imported the packaging.

Exempt packaging

Plastic packaging that contains 30% or more recycled/recovered plastic is exempt from the tax although it counts towards the 10-tonne limit.

Other types of packaging which meet the criteria to be taxed but are exempt are split into two categories:

It is therefore important to consider what type of packaging your business produces, and what category it falls under, as even if you make solely exempt products, but they are eligible for the 10-tonne limit then you will need to register if the threshold is breached.

Packaging that is used to import goods into the UK and packaging used in aircraft, ship and rail goods stores is also exempt from the tax and will not count to the 10 tonne limit.

VAT

VAT is chargeable on the whole price of the items you sell. If you increase the cost of your plastic packaging to cover the cost of the tax, then VAT is payable on the whole price.

Plastic packaging tax is payable once the packaging component is finished or imported, it is not passed down the supply chain like VAT.

What do you need to do?

If your business is involved in the manufacture or importation of plastic packaging and the plastic that your business uses meets the criteria to be taxed under the Plastic Packaging Tax you will need to consider whether the tax applies to you and if it does, register with HMRC for the tax once you breach the 10-tonne threshold.

Registration starts from 1 April 2022.

If you are below the limit you may not be required to register but you will be required to keep detailed records to demonstrate this. In any case, systems and process may need to be changed as records will also be required to demonstrate eligibility for relief.

There are invoicing requirements for taxable plastic packaging sold to business customers with a statement showing that the tax has been paid.

This is a new and evolving area of tax law and specialist advice will be needed to ensure compliance. If you have any questions on this or any other VAT matter please talk to one of our VAT experts on +44 (0)330 124 1399 or contact us here.

For more information about the topic explored in this article, contact us here.

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