For those of us working within the packaging industry, the plastic packaging tax is currently the most pressing issue. The plastic packaging tax forms a part of the EU’s Green Deal, a comprehensive package of tax and non-tax measures. The UK government’s aim is to tackle the global issue of plastic pollution through the implementation of the tax on plastic packaging that contains less than 30% recycled plastic content, from 1st April 2022. Other European countries, such as, Italy, the Netherlands and Spain have also set out intentions to implement measures to reduce plastic use. Within this blog, we set out to clarify the scope and implications of the UK plastic packaging tax (PPT), and cover the proposed measures set out by other EU countries. The Benchmark cloud has now been updated to cater for the new UK plastic packaging tax, making it easier for the producers and buyers of packaging to keep track of the new regulation and its impact on business operations.
UK Plastic Packaging Tax
What is taxed?
Plastic packaging with less than 30% recycled content will be charged at £200 a ton., paid by the manufacturers and importers of plastic packaging (manufacturers and importers of under 10 tons of plastic packaging are not required to register for taxation).
What is the scope?
A packaging component is a product that is designed to be suitable 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 chain of the goods from the producer to the user or consumer.
Products which are designed to provide a single use packaging function for the containment of a commodity or waste by a user or consumer, for example, nappy sacks or disposable cups.
Packaging made of more than one material, i.e., plastic and paper, will be considered plastic if plastic is the predominant material by weight. Individual packaging components are taxed separately.
What isn’t taxed?
Outside of the scope of the tax:
- Transport packaging used to import goods
- Packaging manufactured or imported for non-commercial purposes
- Packaging which is integral to the product, i.e., asthma inhalers
- Items where packaging is secondary to a storage function, i.e., first aid kit casing
- Products primarily designed to be re-used for the presentation of goods, i.e., shelf storage
- Packaging used in aircraft, ships or railway stores for international journeys or as road, rail, ship and air containers
Not taxed but is reported on returns:
- Immediate packaging for licensed human medicines
- Packaging exported outside the UK
- Packaging containing 30% or more recycled plastic content
The tax does not apply to plastic packaging that is exported:
- Direct relief – where known at the time of production/importation packaging will be exported, the tax charge will be deferred if exported within 12 months.
- Tax credits – where the tax is paid but the packaging is subsequently exported, a tax credit can be claimed to offset against future liability to pay the tax.
N.B: Transport packaging used on exported goods is not exempt from the tax.
Recycled plastic content
For plastic to qualify as recycled content, it must be plastic waste that’s been recovered from a manufacturing process (pre-consumer plastic), or it must be plastic which has been recovered from households or other facilities which can no longer be used for its intended purpose (post-consumer plastic) – this does not include organic recycling. Scrap or regrind recovered and reused during the manufacturing process is not considered recycled plastic and it must be reprocessed to qualify.
When is the tax charged and who must account for it?
The business that must account for the tax will depend on when the packaging component is finished – otherwise known as the tax point. The tax will be charged either when the packaging is: 1) manufactured or finished in the UK, or 2) imported finished into the UK on behalf of a business.
The manufacturing is considered finished if: 1) it has undergone its last substantial modification, or 2) where the last substantial modification happens during pack-filling, the last substantial modification prior to that.
Substantial modification: a significant change to the nature of a plastic packaging component. A change to the: shape, structure, thickness, or weight.
Substantial modification exceptions: blowing or forming from a pre-form, cutting, labelling, sealing. Where one of these processes is done by the same person who carries out substantial modification on the same plastic packaging component, it is treated as a substantial modification.
When an organization exceeds the 10 ton threshold required to register, they have 30 days to register for the tax. Companies under the same control can register as a group organization, and they must submit tax returns every quarter. Records of packaging must be kept evidencing any claims which have been made, and records should include:
- Calculations of the weight of the packaging
- Calculations of the recycled content of the packaging
- Evidence of the medical exemption claims
- Evidence of exportations
- A PPT statement on invoices to customers may also be needed in the near future
Examples of evidence:
- Product specifications
- Product certificates and certified of conformity
- Business accounting systems
- Accreditations and international standards
- Quality assurance audits
- Sales and purchase invoices
- Environmental Agency accreditation or equivalent approvals from other bodies
Liability to register
Forward look test – if at any time after 1st April 2022, you expect to manufacture or import at least 10 tons of plastic packaging in the following days.
Backward look test – you have manufactured or imported at least 10 tons of plastic packaging in a 12 month period ending on the last day of a calendar month – you become liable for the tax from the first day of the next month.
Any waste created prior to the tax point is not a chargeable plastic packaging component and no tax is due on it. Any waste or surplus material attached to the component at the tax point is not treated as part of the component and no tax is due on it, provided that: 1) it can be evidenced at the tax point that the material is waste or surplus, 2) this evidence is kept to demonstrate that it was known at the tax point.
Any waste created after the tax point which was not known about at the tax point is part of a chargeable plastic packaging component and the tax is due on it. There is no relief for waste created after the tax point where it was not known it would be waste at the tax point.
Implementation Of The Tax In Practice
After speaking with several senior finance professionals in the packaging industry, the £200 per tons tax is being considered as an increase to the cost of raw materials and therefore sits above contribution margin. A simple example provided was tax and duty on fuel associated with haulage costs, if this were to change, we would represent this as a change to delivery cost, again above contribution margin. As a result of this, margin, commissions, cash discounts and rebates should be considered after the tax is added to your price computation.
Other subtleties which should be considered are the weight calculation of the final ‘component’. In the UK it is considered that the final component weight includes inks, adhesives & coatings, when applying the tax. To date, guidance from Italy and Spain suggests that only the plastic part should be considered, exclusive of inks, adhesives and coatings. Specifics around coldseal and hotseal coatings for Italy and Spain are unclear at this stage and we are awaiting guidance. Other EU member states are yet to confirm any specific details on the mechanics of the tax.
EU Plastic Packaging Taxes
Italy is proposing a plastic packaging tax on the consumption of manufactured single-use items, which have or will have the function of containing, protecting, handling, or delivering goods or food products. The rate has been set at €0.45 per kg of plastic. This tax was due to come into force 2022, however the government have stated it will now be implemented in 2023, due to producer backlash. The Italian tax point arises at the time of production, definitive importation into the national territory or introduction into the same territory from other countries of the EU and becomes taxable when the items are released for consumption. Eligible to pay the tax are: 1) the manufacturer, 2) the seller, 3) the purchaser, if the items are bought from other EU countries and sold for business activity, 4) the EU supplier, if the items are bought from other EU countries and sold to a private consumer, 5) the importer.
The Netherlands published a report covering the possibility of the introduction of a national tax on virgin plastic. It is expected that this will be taxed when plastic granules and powder are sold to producers of plastic products.
Spain have proposed a plastic packaging tax, incoming 2023, which focuses on reducing the impact of certain plastic products on the environment. The measure includes an excise tax on non-reusable plastic packaging. Packaging is deemed non-reusable when it is not intended or marketed with a view to accomplishing multiple life cycles, and for the purposes of the tax, packaging is taken to mean any product designed for the containment protection, handling, distribution and presentation of goods. The taxable amount would be the quantity of non-reusable plastic, and the tax rate is set at €0.45 per kg. The taxpayer would be the manufacturers of products and those making intra-EU acquisitions or imports to Spain. The taxable base could be reduced if the taxpayer uses recycled plastic in the manufacturing process, and exemptions are available for packaging of certain medical products.
Finally, with the increased attention to plastic use within the EU, and implementation of the plastic packaging tax in the UK set for April 2022, it is important for businesses to remain focused on the potential additional costs that they could incur if not complying with the set regulations. Businesses should be compliant with new regulations for both financial and environmental reasons.
This blog is informed by UK GOV’s HM Revenue & Customs Tax Design Team and KPMG’s Plastic Tax report.