Taxing Times for Plastic

Government is introducing a tax that could affect suppliers or distributors in the merchandise industry. Are you one of them?

Plastic has been hitting the headlines repeatedly in the last few months impacting merchandise heavily as raw material shortages have plagued global industries. Plastic has been particularly hard hit due to petrol production being at an all-time low. Whilst we might spend time discussing eradicating plastic from our lives, the reality is it’s presently a material which performs important tasks for not only merchandise but food, drink, and everyday items. Despite sustainability initiatives in the sector receiving praise for forward thinking solutions, the UK Government has long been concerned about how companies use plastic in packaging – cue the new UK Plastic Packaging Tax.

WHAT IS THE PLASTIC PACKAGING TAX?
After long consultations with industries across the UK, the new Plastic Packaging Tax takes effect from 1st April 2022. The tax will encourage the use of recycled rather than new plastic within plastic package production. The intended outcome of this tax will stimulate increased levels of recycling and collection of plastic waste, diverting plastics away from landfill or incineration. Packaging can only contain recycled
content where it is permitted to do so under other regulations, such as those covering food safety.

Across the UK, the general view is this tax is long overdue and presents an opportunity for the UK to accelerate its steps towards a circular economy, but it has also got many companies concerned about who is now liable for this tax. With the majority of merchandise businesses already a long way into their plans for a sustainable and recyclable future, PM has set out who is impacted.

WHICH COMPANIES NEED TO PAY THE TAX?
The first thing to note here is as a business manufacturing or importing plastic packaging, you need to be doing a lot of it to be considered within the taxable threshold. If you are a business that manufactures or imports 10 or more tonnes of plastic packaging over a 12-month period you will need to register for the tax. This is regardless of whether you will have to pay any tax.

This includes importers of packaging which already contains goods, such as plastic bottles filled with drinks. Where the packaging you import already contains other goods, the tax only applies to the plastic packaging itself.

WHAT TYPE PLASTIC PACKAGING IS AFFECTED BY THE NEW TAX?
Let’s start with the ratios of recycled materials as this is a critical part of the formula about whether you will or won’t pay tax. The tax will apply to plastic packaging manufactured in, or imported into, the UK where the plastic used in its manufacture is less than 30% recycled. The rate of the tax will be £200 per metric tonne of plastic packaging. You will need to keep records and, in most cases, register for the tax, even if all the packaging you manufacture or import contains more than 30% recycled plastic.

BUSINESSES UNDER THESE CRITERIA WILL NEED TO REGISTER BY APRIL 2022
If you are a business that needs to register for the tax, you will need to pay Plastic Packaging Tax on any packaging that contains less than 30% recycled plastic. The tax will be charged at £200 per tonne. For example, if you manufacture 10 tonnes of plastic packaging, and 1 tonne contains less than 30% recycled plastic, you will need to pay £200.

The online service to register and pay will be available on 1 April 2022 when the tax takes effect. Companies who know they are liable for the new tax must register by 30 April 2022.

WHAT HAPPENS IF YOU DON’T KNOW WHETHER YOU WILL FALL UNDER THE NEW PACKAGING TAX?
After a long period of uncertainty, the question has cropped up several times as to whether a business will fall under the new tax – for example, are distributors liable as well as manufacturing suppliers in our industry? Realistically, distributors are highly unlikely to be within this profile and only some suppliers, dependent on volumes of plastic used.

WHAT SORT OF PLASTIC COMES UNDER THE NEW TAX?
Under the tax, ‘plastic’ includes bioplastics, including biodegradable, compostable and oxo-degradable plastics. You also need to account for single use plastic (SUP) within your calculations and packaging that contains multiple materials. Packaging that is made of multiple materials but contains more plastic by weight than any other single substance will be a plastic packaging component for the purposes
of the tax. A list of other substances will be provided in regulations later this year.
• Example, if a 10 gram packaging component is made of 4 grams of plastic, 3 grams of aluminium and 3 grams of cardboard, all 10 grams will be considered plastic packaging under tax.

ARE THERE ANY AREAS WHERE THE TAX DOESN’T APPLY?
Yes, and there are several exceptions which apply to product sectors which could apply to the promotional merchandise industry. There are several types of product where Plastic Packaging Tax will not be charged regardless of how much recycled plastic the packaging contains. There are 3 categories of products which are not chargeable because they are specified in the law as not being classed as a packaging component for the purpose of the tax even though they fall within the general definition.
These are items:
● where the packaging function is secondary to the storage function.
● where the packaging is an integral part of the goods.
● designed primarily to be reused for the presentation of goods.
There are four types of products which are classed as plastic packaging for the purpose of the tax but are exempted from being chargeable by the law. These are plastic packaging components relevant to the merchandise industry:
● used as transport packaging on imported goods.
● that are permanently designated or set aside for use other than for a packaging use. The last point must still be used when assessing whether you meet the 10 tonnes threshold of plastic packaging
in a 12 month period for determining if you need to register for the tax even though the tax is not chargeable on these. It’s also worth noting plastic packaging components which are exported from the UK may benefit from relief from Plastic Packaging Tax.

With some additional detail on how this thinking is applied to certain types of plastic use, this is where the tax is not charged:
● Plastic Packaging Tax is not charged on plastic packaging where the packaging function is secondary to the storage function. This is packaging designed to be suitable to contain goods at the time of sale to the consumer or user, where the product’s role as packaging of the goods, is secondary to its use by the end consumer, to contain, support or preserve the goods throughout their lifetime e.g. earbud cases, manicure sets.
● Packaging Tax is not charged where the packaging is an integral part of the goods and is necessary to enable the goods to be used by the consumer or user e.g. dental floss cases.
● Plastic Packaging Tax is not charged where the plastic packaging is designed to be reused for the presentation of goods. This is packaging primarily designed to be reused for the presentation of goods to a consumer or user and have been permanently set aside for this purpose, before or as soon as they have been manufactured or imported e.g. sales presentation stands.

STILL NOT SURE IF THE TAX APPLIES TO YOUR BUSINESS?
Government has advised that if the following conditions are met, then you should register in April 2022:
● at any time after 1 April 2022 you expect to manufacture or import 10 tonnes or more of plastic packaging in the following 30 days – you must notify your liability to register within 30 days of the first day that this condition is met Example: on 15 July you accept an order to manufacture 15 tonnes of plastic packaging by 31 July – you would be liable to be registered for the tax from 15 July and would need to notify your liability to register before 14 August
● you have manufactured or imported 10 tonnes or more of plastic packaging in a 12-month period ending on the last day of a calendar month – you become liable for Plastic Packaging Tax from the first day of the next month and must notify your liability to register by the first day of the subsequent month
Example: if you go over the 10 tonne or more threshold during December, you become liable from 1 January and must notify your liability to register before 31 January

GETTING TO GRIPS WITH THE NEW TAX
There are some exceptions in the first year of the new tax rules and once a business has determined whether they fit the conditions, it’s worth exploring whether the exceptions in year 1 could apply. There are a number of stages to assess whether the tax applies so if you think this applies to your business, how you import and export materials, the type of records to keep (such as conformity certificates) and what exemptions might apply, it’s worth doing your homework on the topic so you don’t get caught out.

REGISTERING FOR THE TAX
Like much of the new guidance published by Government in advance, the more detailed guidance and registration is not yet available at the time of publication. However, the helpful pages at Gov.uk do provide some plain English guidance – search ‘Plastic Packaging Tax’. The section marked ‘Further Information for Businesses’ also covers off more detail about single use plastics and more guidance. You can also contact HMRC via their direct email on indirecttaxdesign.team@hmrc.gov.uk

OTHER GUIDANCE
The British Plastics Federation also has a very useful and detailed FAQ section at bpf.co.uk/packagingtax which we recommend any business who thinks they may be liable should visit. BPMA members can also contact the Association for further support.