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Plastic Packaging Tax – are your clients clear?

1 April 2022 saw the new plastic packaging tax (PPT) come into effect for manufacturers and importers of plastic packaging. PPT is designed to reduce single use plastic and encourage greater reliance on recycled plastics. The Institute of Financial Accountants (IFA) outlines the new measures to help guide clients through the legislation and requirements, and understand how the plastic tax impacts their business

The UK uses an estimated five million tonnes of plastic every year, nearly half of which is packaging. Two years ago it was reported that globally, plastic pollution is expected to weigh a total of 1.3 billion tonnes by 2040. In March an historic deal was reached between 200 countries, jointly agreeing to a global plastics treaty to tackle the problem. Rather than being designed to generate significant tax bills, the aim of the PPT is to influence behaviour to reflect part of each government’s ESG agenda and encourage the use of recycled content in plastic packaging. It is estimated that, as a result, the use of recycled plastic in packaging could increase by around an estimated 40%. Based on current factors, this is equal to carbon savings of almost 200,000 tonnes in 2022-23. The legislation may also help to reduce landfill waste and incineration and drive recycling technologies within the UK.

The new legislation affects businesses producing or importing packaging made of mostly virgin plastics – in other words, if less than 30% of the plastic is recycled, they will now pay PPT. If manufacturers and importers expect to go over the threshold of 10 metric tonnes over a 12-month period, it is essential that they register for PPT on Gov.uk. Importers of plastic packaging will need to check who is responsible for complying with and paying PPT, as this liability is unlikely to fall to their suppliers. For the first year of the tax, PPT applies to clients from 1 April 2022, not the full 12 months. For example, if a business’s year end is 31 July 2022, clients do not need to look back to July 2021, but instead just to 1 April 2022. Where the tax applies, it is charged at the rate of £200 per tonne.

PPT impacts a wide range of sectors including online retail, pharmaceutical, cosmetics, oil, food and drink, and packaging manufacturing. Some of these businesses also have additional costs to consider. For instance, in some circumstances food and drink legislation stipulates that using recycled plastic packaging for food is not permitted and, therefore, food manufacturers are more likely to be required to pay the tax for using virgin plastics. While these changes impact businesses, there is also the added issue that consumers will have to absorb much of the extra costs associated with PPT.

A full list of included and excluded items relating to PPT can be found here, but below are some common examples:

Items subject to plastic packaging tax:

  • Bubble wrap
  • Bin bags
  • Plastic drink bottles
  • Sandwich bags
  • Sticky tape.

Items excluded from plastic packaging tax:

  • Plastic packaging manufactured or imported for use in the immediate packaging of a medicinal product.
  • Transport plastic packaging used on the transport of imported goods.
  • Plastic packaging used in aircraft, ship and railway stores for international journeys.

Examples of exempt plastic components:

  • Toolboxes
  • First aid boxes
  • Glasses cases
  • CD, DVD, and video game cases
  • Water cartridge filters
  • Printer or toner cartridges
  • Inhalers.

Accountants will need to remind businesses of the importance of keeping evidence so that the amount of plastic packaging can be verified by HMRC where necessary. The records that businesses should keep include the total amount in weight of the materials used to manufacture plastic packaging (excluding packaging which is used to transport imported goods), and data used to determine whether the packaging is made from ‘virgin plastics’.

Most businesses will have already reviewed their supply chains in preparation for the changes. Nevertheless, accountants are well-placed to help business owners understand PPT, how it will affect them, and the implications of failing to pay the right amount of tax. Due diligence checks must be carried out by, or on behalf of, clients who purchase plastic packaging components from another business as well as manufacturers and importers of plastic packaging components. Businesses that fail to carry out adequate due diligence and keep sufficient records could be held liable for any PPT that has not been paid by another business in the supply chain. As HMRC’s guidance only gives examples of appropriate checks, it is crucial to ensure what checks are relevant, reasonable and proportionate for each business, depending on their circumstances. 

Further information on the latest PPT guidance for clients can be found by visiting: https://www.gov.uk/government/collections/plastic-packaging-tax.  

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