What is the Plastic Packaging Tax?
A beginner’s guide to the new legislation, and how it may affect your business
If your business uses packaging, then you will have likely heard about the Plastic Packaging Tax which is being introduced in the UK on 1st April 2022.
In short, any plastic packaging that does not contain at least 30% recycled plastic content will be subject to the tax. This will be charged at a rate of £200 per metric tonne of plastic used.
And whilst the aim if the tax is to promote improved recycling within the UK, there is still considerable confusion. Who pays for the tax? Which products qualify? Are any exempt? What about bio-based materials? How do I find this all out?
This beginners guide has been created to provide a concise yet detailed overview. It covers a number of questions frequently asked by businesses that this may affect. Broken down into four principal areas, it covers:
- A general overview of the plastic packaging tax
- The products that qualify – and those that are exempt
- Who is responsible, and other business requirements
- Other important considerations
Please continue reading below, or use the table of contents to jump straight to your area of interest.
Quick Reference / Contents
01: Plastic Packaging Tax Overview
What is the plastic packaging tax?
UK HMRC is introducing the plastic packaging tax, which will take effect from April 1st, 2022. It will cover plastic packaging products that do not contain at least 30% recycled content, and will affect both UK producers and importers of plastic packaging. This also covers packaging that is already “filled” when being imported into the UK.
Products / businesses that qualify for the tax will be charged £200 per metric tonne of plastic used in the packaging.
Why is the tax being introduced?
It is estimated that, in the UK, around five million tonnes of plastic are used every year, around half of which is packaging. However, only a small fraction of this is recycled, meaning plastic waste is either sent to landfill or exported (although large importers of waste, such as Malaysia and China, are beginning to limit this).
In order to address this challenge, the UK government is looking to increase the domestic capacity to recycle and reuse plastic waste. But to do so requires investment.
The idea is that the new tax will provide a clear economic incentive for businesses to use recycled plastic material in their plastic packaging. This should (in theory) create greater demand for recycled plastic material, and therefore stimulate increased levels of recycling and collection of plastic waste. This will also help in diverting it away from landfill or incineration
By increasing the demand for recycled plastic material it should, in turn, result in increased investment in recycling infrastructure to facilitate this.
How much tax must be paid?
For businesses and / or packaging that qualifies (details of this are covered later in this guide), there will be a tax of £200 per metric tonne of plastic used in the packaging.
However, this may be subject to change if the price of recycled material increases significantly (due to increased demand not matched by supply). This would then make virgin plastics more appealing, potentially necessitating a rise in the tax until equilibrium is reached.
02: Types of Packaging Affected
What packaging qualifies for the tax?
There are in effect 2 types of packaging that qualify for the new tax – that which is used in a supply chain, and that which is for single use by a consumer.
What is the definition of packaging designed to be used in the supply chain?
The government website states that:
A plastic packaging component is a product that’s designed to be suitable for use in the supply chain, from the manufacturer of the goods to the user or consumer. It can be used alone or in combination with other products.
It must also do one or more of the following functions: contain the goods, protect the goods, handle the goods, present the goods, or deliver the goods.
What about single use consumer packaging?
For single use packaging, the government website indicates that:
For the purposes of Plastic Packaging Tax, single use consumer packaging is any single use product designed to be used by a consumer or domestic user in performing one or more of the following functions in respect of goods or waste: containment, protection, handling, presentation, or delivery.
These products would be used by the consumer rather than in the supply chain.
What about recycled plastic packaging?
The general rule of thumb is that any plastic packaging that does not contain at least 30% recycled content will be subject to the tax.
It is important to note however that plastic packaging containing 30% or more recycled plastic still counts towards the 10-tonne threshold for packaging you manufacture or import in a 12-month period. As such, you must still keep records of it.
What counts as recycled plastic?
There are two types of recycled packaging that are defined in the new legislation – post-consumer and pre-consumer.
Post-consumer plastic is that which has come from households before being collected for recycling. It can also include plastics recovered from industrial facilities and materials that were part of a distribution / supply chain.
Pre-consumer plastics covers waste that is generated by manufacturing processes and is reused at the same site. It is important to note that plastic generated as scrap (or regrind – effectively whereby offcuts are put straight back into the same process) do not count as recycled plastic.
It is important to be aware of this final point in particular, as a number of manufacturers may have been using this in their figures when marketing products as “recycled” (and would not qualify as exempt under the new tax rules).
Is all plastic packaging subject to the tax?
There are a number of plastic packaging products / components that are except from the new tax.
This includes packaging that has a longer-term primary use (e.g. toolbox or DVD Cases), packaging where the contents are inherently reliant on the packaging (printer cartridges, tea bags), where packaging is primarily designed for use in display of goods (presentation stands, POS), plastic packaging manufactured or imported for use in the immediate packaging of a medicinal product, where the packaging or component is permanently set aside for use other than for packaging, or for use in aircraft, ship, and rail goods stores.
For further information, please view this detailed guide covering the packaging that is exempt from the new HMRC legislation.
Does this also apply to imports of packaging?
There are also some rules worth noting surrounding the importing of plastic packaging.
The tax does apply to finished packaging that is brought into the UK for use (e.g. polythene bags to pack products in) and extends to prefilled packaging that is imported (e.g. bottles containing drinks).
However, the transport packaging used to import goods is exempt from the tax. For example, any shrink wrap or other plastic packaging used to ship goods into the UK will not be taxed.
What about multi material products?
Many packaging products will contain a mix of materials. So do these fall under the scope of the plastic packaging tax?
The short answer is that, if plastic is the single largest material by weight, the entire item will be considered as plastic packaging.
As an example, a pack containing 4 grams of plastic, 3 grams of aluminium and 3 grams of paper, would be classed – and taxed – as 10 grams of plastic.
The opposite also applies, in that if plastic is a lesser overall component then it will not be taxed. Using a similar example, an item containing 4g aluminium, 3g plastic and 3g paper would be classed as 10 grams of aluminium, and the tax would not apply.
It is important to also note that there was discussions regarding the government introducing a test to determine whether the differing materials that make up packaging are “easily separated”. This would mean that where a mailing bag or padded envelope is made up of 10 grams of paper and 8 grams of plastic, but the elements can be easily separated, the tax will be applied to the 8 grams of plastic.
However, the current position is that describing different components as ‘easily separable’ can often cause uncertainty in these types of examples. As such, two materials would only be considered a single component where they are manufactured together. Foam being glued into a box would be considered two separate components for the tax.
What about compostable and biodegradable / bio-based plastics?
Even though the plastic packaging tax is designed specifically to result in environmental benefits, compostable, biodegradable and bio-based plastics will not be exempt from the tax.
What about items that are designed for multiple use (e.g. tote containers)?
There had been some confusion regarding whether reusable transit packaging would fall within the scope of the plastic packaging tax. HMRC have however confirmed that items such as totes and other RTP containers will qualify as “packaging designed to be suitable for use in the supply chain”, and so would be taxable.
Other items such as picking bins , although arguably being “plastic packaging where the primary function is for storage”, are listed on the government website as being part of the supply chain (so would again be taxable).
However, a protective case (with or without foam) would be considered long-term storage, and so would not be subject to the tax. Any packaging on or in the case designed to be discarded after sale (e.g. a temporary plastic film which protects the goods in the supply chain) would be considered packaging and subject to the tax.
Is any other plastic packaging exempt from the tax?
The only other scenario where the plastic packaging tax does not apply, is if the packaging is exported outside of the UK. In this case – and assuming the packaging is exported within 12 months of manufacture / receipt – it will not be liable for the tax.
03: Responsibility for the Plastic Packaging Tax
Who is responsible for paying the tax?
There are two main groups that will be responsible for paying plastic packaging tax – importers and manufacturers.
Businesses that manufacture or import 10 or more tonnes of plastic packaging over a 12-month period will need to register for and pay the applicable tax. As mentioned previously, this includes importers of packaging that already contains goods, such as plastic bottles filled with drinks.
The tax payable only applies to the weight of the plastic packaging, although all plastic packaging (even that which contains 30% or more recycled material) counts towards the 10-tonne threshold.
However, any business that manufactures or imports plastic packaging, even if it is less than 10 tonnes a year, will need to keep records of the packaging that they have manufactured and / or imported.
It must also be noted that, even if you are an end user of plastic packaging, you are likely to indirectly pay some or all of the plastic packaging tax. This is due to the likelihood of a significant percentage of the additional costs imposed by the tax being passed on by your suppliers.
What happens when there are multiple manufacturers?
One scenario that can potentially confuse who is liable for the plastic packaging tax is when multiple manufacturers contribute to the production of specific packaging (e.g. supplier A makes a plastic sheet, which is then fabricated into a bag by supplier B).
In cases such as this, the last “substantial modifier” will be liable for the tax.
This is defined as the last business to alter the shape, structure, thickness, or weight of the product, through processes including extrusion, moulding, layering, laminating, forming and even printing.
Processes such as blowing, cutting, labelling, and sealing do not currently count as substantial modification under this definition.
Do businesses need to register their packaging use?
Only businesses that either import or manufacture plastic packaging / products that fall under the scope of the tax need to register with HMRC.
Companies that purchase plastic packaging from a UK supplier – and do not significantly modify it – will not be liable for the tax, and do not need to register (although may notice costs increase as this passed on by suppliers).
Do I need to prove that the packaging I use is at least 30% recycled?
There are at present no plans for HMRC to develop an official certification system for proof of recycled content in plastic packaging. However, the burden of proof will reside with the manufacturer / importer. This means it will be essential to apply due diligence and ensure good record keeping of your plastic packaging supply chain.
What records do I have to keep?
As per the government website and official guidance, if you’re registered for the Plastic Packaging Tax you must keep accounts and records to support the information you submit in your quarterly tax returns.
Your accounts must also show how you have worked out the figures you submit on your return, plus show the evidence to support these figures.
Your accounts and records must also be kept for a minimum of 6 years, and record applicable plastic packaging use in tonnes, kilograms, and grams.
Secondary liability and due diligence requirements
Whilst it is the importer or manufacturer of the packaging that will be liable for the tax, other businesses within the supply chain can be secondarily liable or jointly and severally liable for the tax where they know or ought to have known that the Plastic Packaging Tax has not been paid.
This secondary liability and the joint and several liability provisions mean that any related business needs to conduct due diligence. This is to ensure it cannot be said that it ought to have known that the tax was not paid.
As such, businesses should carry out due diligence on suppliers and / or customers, as per government guidance.
04: Other Considerations
Should I tell my customers about the tax?
If you import or manufacture plastic packaging, then you can obviously absorb the additional costs incurred by the plastic packaging tax, or pass some / all of it on to the users of your products.
Originally, the legislation specified that manufacturers and importers would need to show on any affected invoices the amount of plastic packaging tax paid on the concerned products. However, this will no longer be implemented from April 2022 when the tax comes into effect.
Saying that, providing transparency for your customers regarding any increases that are passed on to them would be a sensible course of action.
My business doesn’t qualify for the tax – will it still affect me?
Although your business may not qualify for paying the plastic packaging tax directly, you may still find that you do so indirectly.
Suppliers of many products may pass on some or all of the additional costs incurred. This may be communicated as being due to the tax, or simply as a price increase on the affected products.
It would be wise therefore to discuss any price changes with your supplier(s) in advance of the plastic packaging tax coming into effect in April 2022.
What can I do to avoid the plastic packaging tax?
There are a number of steps that you can take to potentially avoid – or at least mitigate – paying the plastic packaging tax (or incurring increased costs from your suppliers).
This includes switching to products that are composed of at least 30% recycled material, switching to completely different materials (e.g. replacing plastic packaging with paper-based products such as corrugated packaging), reducing the overall amount / weight of plastic you use in your packaging, utilising multi trip and reusable packaging where appropriate, and generally working with suppliers to develop sustainable strategies moving forward.
Mitigating the Plastic Packaging Tax
If you are an importer or manufacturer of plastic packaging that qualifies under the scope of the tax, then the chances are that your preparations are already well under way to ensure compliance with new legislation.
However, if you will not be directly paying the tax it is important to act now to ensure that the price of the packaging you use does not become unsustainable. Discuss your options with your packaging supplier (including using recycled equivalents or alternative products) to avoid or mitigate any price increases that you may see.
It should also be said that the tax provides the perfect opportunity to review the long-term sustainability of your packaging, and turn this to your advantage (e.g. by highlighting your eco credentials to ever more receptive consumers).
Need further advice? You can download a free guide covering varying aspects of the Plastic Packaging Tax 2022, or alternatively a member of the GWP team will be happy to help where possible.
The information on this page is believed to be correct at the time of publication. The content of this article is also subject to change until the Plastic Packaging Tax legislation is fully approved by Parliament.
Please also note that the information provided is intended as a guide only. GWP can accept no responsibility or liability for loss, damage, or any other consequence of reliance on this information, howsoever caused. As all applications and scenarios vary, it is your responsibility or the responsibility of your business to ensure that tax is paid if / where applicable. If in any doubt, please check with your tax advisor.