Risk & Economy » Tax » Wide scope of upcoming UK Plastic Packaging Tax could catch businesses out

Wide scope of upcoming UK Plastic Packaging Tax could catch businesses out

Coming into effect April 1, the new tax is estimated to impact 20,000 manufacturers and importers of plastic packaging, and significantly affect supply chain negotiations between stakeholders to the UK market

Many businesses could be caught out under the broad scope of the UK’s upcoming Plastic Packaging Tax (PPT), as the government cracks down on the use of virgin and single use plastics.

“It goes a lot wider than you’d expect,” says Catherine Robins, partner at Pinsent Masons. “In other countries [where a similar tax has been introduced], they’re doing things that are very much focused on supermarket and food packaging.

“[PPT] goes a lot wider than that as it’s basically any kind of packaging. It’s tricky because businesses are going to be caught out thinking that they’re not caught by it and will find they are.”

Coming into effect April 1, the new tax is estimated to impact 20,000 manufacturers and importers of plastic packaging.

Caroline Brown, associate in the International Tax team at Bird & Bird, says it’s too early to judge if the tax will result in a greater demand for recycled plastic or will “just be an ineffective burden on businesses”.

“What is clear is that the PPT will significantly affect supply chain negotiations between producers, retailers and importers to the UK market. They will need to consider how to meet PPT targets and obligations and where the burden should fall.”

According to HMRC, the average annual net increase in the continuing administrative burden for businesses is estimated to be £400,000. This is largely for costs related to completing returns, but also includes the costs of new registrations after the commencement of the tax.

“The UK’s PPT is novel and bold, and perhaps untimely in passing costs onto businesses as they continue to struggle to recover from Covid-19 impacts – other regimes such as the EU’s version require a state-level contribution with countries not yet passing the financial burden onto businesses,” adds Brown.

Preparing for PPT

PPT will apply to plastic packaging manufactured or imported into the UK that does not contain at least 30 percent of recycled plastic, whether the packaging is unfilled or filled.

It extends to items with plastic packaging and single use packaging, says Robin. “It’s not just packaging, it’s things like cling film, freezer bags […] and bin bags.”

“There are some exemptions if the packaging is essentially integral to the use of the product. For example, printer cartridges where you couldn’t use it if it didn’t have the plastic round the ink.”

However, there are complex rules around what is considered an integral part of the product, she says. In government guidance, a mascara brush, wand, and cap are considered integral, but the bottle is not and, therefore, subject to the new tax.

The rate of the tax will be £200 per metric tonne of plastic packaging. Manufacturers or importers of 10 or more tonnes of plastic packaging over a 12-month period must register for the tax.

Those below the threshold will not be subject to the tax but will still have to show they have carried out relevant checks, says Robin.

“It’s each component you have to look at separately, so if you’re looking at a plastic bottle, you’ve got the bottle, the plastic label and the lid to look at separately.

“There’s a lot of finding out about information and if you’re buying it or importing it, you need to get the information from the manufacturer as to what everything is made of,” she says.

Businesses will need to carry out regular due diligence checks on their supply chain, or risk being made jointly and severally liable for the tax, or even secondary liable if the person who should be paying the tax hasn’t.

“There is quite a lot of new information that people will have to obtain than they normally would and [have] new record keeping because you need to be able to show you’ve carried out due diligence,” says Robin.

Businesses should ensure new contracts with manufacturers have accounted for the new tax and comply with requirements, if applicable. Similarly, the cost of the tax may also need to be added into the contracts to avoid businesses absorbing additional costs, adds Robin.

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