From 1 April 2022, the UK will introduce a new environmental tax on the production and importation of plastic packaging with less than 30% recycled content by weight (the "PPT").
Plastic packaging subject to the tax
The PPT will apply to finished plastic packaging components ("plastic packaging"). 'Plastic' means a polymer material to which additives or substances may have been added other than cellulose-based polymers which have not been chemically modified.
A packaging component is any product for use, whether alone or in combination with other products, in the containment, protection, handling, delivery or presentation of goods at any stage in the supply of the goods from the producer of the goods to the user or consumer. This is a broad definition and will, in practice, cover most plastic packaging.
Plastic packaging will be deemed to be 'finished' when it has undergone its last 'substantial modification' i.e. the last change to the packaging's shape, structure, thickness or weight made by a manufacturing process other than one involving solely blowing, forming, cutting, labelling or sealing the packaging.
The amount of tax payable
The PPT will be charged at a rate of £200 per tonne. If plastic packaging is made from multiple materials, but contains more plastic by weight (including additives which form part of the plastic) than any other substance, then it will be classed as a plastic packaging for the purposes of the PPT.
Businesses can defer paying the tax for up to 12 months if the plastic packaging is going to be exported.
Exempt and excluded packaging
Several categories of plastic packaging will be exempt from the PPT. These include packaging components used for the immediate packaging of a human medicinal product licensed by the UK's Medicines and Healthcare Products Regulatory Agency and plastic packaging used as transport packaging to import goods into the UK.
There are also certain types of plastic packaging which are excluded from the PPT. These include packaging components which are deigned to be an integral part of the goods (such as printer or toner cartridges) and packaging components which are reused for the presentation of goods (such as shop fittings or sales presentation stands).
Businesses liable for the PPT
Businesses must register for the PPT if they have produced or imported 10 or more tonnes of finished plastic packaging within the last 12 months or will do so in the next 30 days. This includes non-resident taxpayers who import finished plastic packaging into the UK or who manufacture finished plastic packaging in the UK. Registration for the PPT will open on 1 April 2022.
For PPT purposes, an importer is the person on whose behalf finished plastic packaging is imported. In practice, determining whether a business is an importer for PPT purposes may require an assessment of its role in the supply chain and the precise mechanics of how its plastic packaging is brought into the UK.
Due diligence requirements
Businesses operating in supply chains involving plastic packaging can be made either jointly and severally or secondarily liable for unpaid PPT, even if they would not be liable for the PPT in the normal course as the producer or importer of the plastic packaging. To avoid being made liable for another person's unpaid PPT, businesses should carry out relevant, reasonable and proportionate due-diligence checks to ensure that the correct amount of tax (if any) is being paid or that plastic packaging is outside the scope of the PPT.
The precise checks which are required will depend on the circumstances. While HM Revenue & Customs (the UK's tax authority) does not provide an exhaustive list of checks which will satisfy the due-diligence requirement, they have advised that appropriate checks could include requesting confirmation of the tax status of plastic packaging from suppliers, obtaining signed confirmations from suppliers confirming that any applicable PPT has been properly accounted for and conducting physical inspections or audits to verify information.
Checks should be carried out at least every 12 months, but may need to be undertaken more frequently if there is a change in circumstances (for example, if a business changes supplier).
Adjustment of contracts
The legislation establishing the PPT regime creates a statutory mechanism to allow contracts involving the supply of plastic packaging to be 'adjusted' from 1 April 2022 to increase the amounts payable under the contract to reflect the amount of PPT chargeable on plastic packaging supplied under the contract.
A contract can only be adjusted by a supplier of plastic packaging that it has produced or which was imported on its behalf. A supplier can adjust the contract unilaterally and without needing to formally amend its terms where all of the following conditions are satisfied:
- the contract relates to the supply of plastic packaging within the scope of the PPT;
- the contract came into effect before either the PPT applied to the plastic packaging (i.e. before 1 April 2022) or there was a change in the PPT applicable to the plastic packaging (i.e. where the scope of the PPT or the amount of tax changes after 1 April 2022);
- the contract requires payment to be made for the supply of the plastic packaging; and
- the contract does not explicitly prohibit such an adjustment.
A contract's payment terms can only be adjusted to reflect the PPT chargeable to a supplier on that plastic packaging. A supplier cannot adjust the contract if the contract expressly precludes it from doing so. As the PPT is a new measure, it is likely that the majority of potentially adjustable contracts will not contain express wording that specifically excludes a supplier's statutory PPT adjustment right.
Contracts entered into on or after 1 April 2022 can only be adjusted by a supplier where the scope of the PPT or the amount of tax payable on the plastic packaging changes after the contract is entered into (and assuming there is no express prohibition on such an adjustment in the contract).
Finally, and again unless a contract expressly provides otherwise, a supplier can adjust a contract so that, if the counterparty subsequently converts the plastic packaging into a different chargeable plastic packaging component, the supplier has the right to receive information about the conversion. This reflects the fact that a supplier may need to make a claim for a tax credit on the basis that another person should in fact be liable for the PPT.
Please contact Jessica Gardner or Aonghus Heatley if you require any assistance in connection with the PPT. We have experience in advising clients on how to prepare for the PPT including through reviewing standard terms and in assessing whether entities are at risk of being found to be importers for PPT purposes.
HMRC has also produce a suite of technical guidance on the PPT – this can be found here.
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