Key steps to prepare for the UK’s new Plastic Packaging Tax

This article was first published on Bloomberg Tax.

As covered in our previous insight, the UK is due to implement a Plastic Packaging Tax (PPT) with effect from 1 April 2022. The tax will apply to businesses who manufacture or import certain finished plastic packaging materials. It will apply to both UK and overseas based organisations alike.

We recommend action is taken now as changes to systems, processes and controls will be required in order to record the data needed to manage compliance, contracts and pricing. The tax is expected to have a significant impact across a broad range of sectors including, but not limited to:

• manufacturing
• consumer goods
• retail
• food and beverage
• pharmaceutical and cosmetics.

The UK government has yet to provide final confirmation that the tax will go ahead as planned, but the primary legislation required to enact it is in law and further legislation is expected shortly. HMRC has also issued guidance explaining the likely mechanics of the tax, so organisations are encouraged to begin their preparations for the tax’s introduction.

How the tax is expected to operate

The tax appears likely to apply to finished plastic packaging manufactured in, or imported into, the UK where the plastic used is less than 30% recycled when measured by weight. The rate of tax will be £200 per metric tonne and is payable by the producer/importer. Although note if the person on whose behalf plastic packaging is imported into the UK does not account for the tax, HMRC may have powers to collect the tax from others in the supply chain.

Registration for PPT and record keeping obligations start from the moment 10 or more tonnes of plastic packaging is imported or manufactured. It is expected that registration will be required even if an organisation has no tax to pay (because it is below the 30% recycled content threshold).

It is worth bearing in mind that updates to the legislation continue being issued. For instance, the definition of packaging components was amended in December 2021 to both remove and add various categories of product. It’s therefore recommended that any previous analysis of products is reviewed to determine whether any previous conclusions reached will still apply.

Preparing for the new tax

Businesses will need to consider their packaging strategy in the build up to the tax taking effect. Key questions to ask are as follows.

• Have you assessed your supply chains to determine which entities may be impacted across your corporate group?
• Specifically, will the product you manufacture/import be subject to PPT or does it qualify for exemption?
• Will contracts allow your suppliers to pass the cost of this tax on to you? Can you pass it on to your customers? Are contractual changes needed?
• Have you modelled the financial effect of the tax on your pricing/margins?
• Do your existing systems and processes capture all the information needed to comply with the PPT compliance requirements, even if to demonstrate you have no PPT to pay?
• From a governance perspective, what changes to your processes and controls are needed and which teams/persons will have responsibility for this tax?
• Will your manufacturing/procurement processes need to change as a result of the introduction of PPT?

How Crowe can help

PPT is due to take effect from 1 April 2022 which doesn’t leave a lot of time for organisations to complete their preparations; particularly as the final legislative steps required for the tax to be implemented have not yet been completed. The HMRC portal to register and pay PPT is expected to be available on 1 April 2022, the day the tax comes into effect.

PPT will create a need for changes to systems, processes and controls in order to record the data needed to manage compliance, contracts and pricing. Reviewing your supply chains to identify the likely points of impact is the first step.

We recommend action is taken now to assess the likely impact of the tax and to begin the preparatory work required to ensure that the relevant information is available to meet the compliance requirements arising.

For more information, or if you would like to discuss this issue further, please contact Robert Marchant, Rob Janering or your usual Crowe contact.