Are you prepared for the Plastic Packaging Tax?
Chris Morgan is a Tax Director specialising in leading the provision of BDO’s Plastic Packaging Tax services.
Plastic has long been regarded as a villain when it comes to the environmental efforts of economies across the globe. Billions of tonnes of plastics waste are estimated to have been produced, with only a small percentage being recycled.
Calls to tackle the plastic problem have led to a raft of green initiatives and the emergence in recent years of sustainable packaging solutions aimed at tackling plastic waste. One significant development on the horizon in the UK is the introduction of the Plastic Packaging Tax (PPT) which will come into force in April 2022.
The new tax will impact on plastic packaging manufacturers and importers into the UK of more than 10 tonnes of plastic packaging a year that does not contain at least 30% of recycled plastic. Purchasers are also potentially affected.
It’s essential for manufacturers and importers, including importers of packaging surrounding other goods, to prepare in advance for the new tax, which will be levied at a rate of £200 per metric tonne of plastic packaging. In the build-up to the changes, there are a number of key questions that need to be considered:
- Manufacturers and importers: what are your PPT registration and ongoing compliance and payment obligations?
- Manufacturers and importers: what is the extent of your liability to PPT, taking into consideration current business operations, validation of existing packaging data, and current processes?
- Purchasers: what potential costs will be passed on to you and what exposure may you have to a potential secondary liability, in respect of PPT unpaid by suppliers, and what associated supply chain checks need to be introduced?
In answering these questions, there are several practical steps that can be taken ahead of the introduction of PPT.
Check whether and how your business will be impacted
It is vital that you understand what the impact is on the business. If the business is a manufacturer or importer, what is the potential PPT liability? Has the business undertaken a review of its supply chain and existing contracts in order to understand what plastic packaging is being received and what is its origin? Do the business’s existing supplier contracts allow for the passing on of any charges with respect to PPT? Does the business have robust processes to capture the necessary data needed to complete a PPT return for HM Revenue & Customs and is the business one of a number of UK companies? All these are essential questions to be addressed in order to understand the impact of the tax.
If the business is not a manufacturer or importer of plastic packaging, it still may be impacted. The new tax has secondary / joint and several liability obligations for unpaid tax. Customers can however protect themselves from this situation by undertaking regular due diligence checks on its supply chain.
Review your current packaging - There are many different packaging options now available to businesses and it may be timely and cost effective to move away from the use of virgin plastic. Consider whether it’s viable to switch to a more environmentally friendly option that contains 30% or more recycled plastic. It’s also important to note that projects looking to use innovative packaging may qualify for R&D tax reliefs and/or capital allowances.
Engage with your suppliers - If, as a business, you don’t package goods in-house, work alongside your suppliers to explore what alternatives they can offer. Depending on your commercial leverage with suppliers, it may be possible to encourage, request, or even demand that they switch to PPT-compliant plastic or other environmentally responsible packaging before April 2022. This will help to reduce your exposure to the new levy. It may also be an opportune time to optimise your contractual position with customers/suppliers in respect of PPT.
Establish PPT operational systems and processes - Ensure that you are prepared to manage, maintain and report data required by HMRC on an ongoing basis to ensure PPT filing obligations are met. Even if you use the most environmentally sensitive packaging possible, there will still be a need to document this on an ongoing basis so that you can prove to HMRC that there is no need for you to register or account for PPT.
Whether its external reviews, impact assessments, staff training or business assurance reports, it’s essential for manufacturers and importers to understand their PPT exposure in the coming months.
If you would like to discuss the introduction of the PPT and your company’s potential liabilities, as well as advice and support on R&D claims or capital allowances when developing new packaging solutions, contact Chris Morgan, Director in BDO Yorkshire and a plastic packaging tax specialist on [email protected].
Have you read the latest edition of our Food and Drink report 2021? Manufacturers in the UK look ahead to growth after digesting a tough year, download the report here.