Plastic Packaging Tax: Applying it for your clients

The aim of the Plastic Packaging Tax (PPT) is to influence behaviour as part of the government’s ESG agenda and encourage the use of recycled content in plastic packaging, rather than generate significant tax bills.

It is estimated that, as a result of PPT, the use of recycled plastic in packaging could increase by 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 or incineration, and drive recycling technologies within the UK.

Does your client need to register for PPT?

The new legislation affects businesses producing or importing packaging made of mostly virgin plastics – in other words, if less than 30% of the plastic content is recycled, they will now pay PPT.

However, it only comes into effect if the total per client goes over the threshold of 10 metric tonnes in a 12-month period, but if manufacturers and importers expect to go over, it is essential that they register for PPT.

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 April 1, 2022, not the full 12 months. For example, if a business’ year end is July 31, 2022, clients do not need to look back to July 2021, but instead just to April 1, 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, and 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.

What does the tax include/exclude?

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.

What do clients need to be aware of for compliance?

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.

If adequate due diligence is not carried out and there are not sufficient records, businesses could be held liable for any PPT that has not been paid by another business in the supply chain. HMRC will apply fixed or daily penalties for failure to comply with the new legislation.

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.

Shared from Accountancy Age