This may not be be the best time to introduce a new tax on business, but amid soaring costs, a wobbly recovery from a global pandemic and adjusting to Brexit, that is exactly what is happening with the new Plastic Packaging Tax being introduced next month. However, it may be the stimulation industry needs to take a leap forward in the sustainability of packaging.
Plastic Packaging Tax comes into effect on 1st April 2022
The Government has announced that in April 2022 it will introduce a Plastic Packaging Tax in an effort to provide a clear economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging, which will create greater demand for this material. In turn the tax will stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
It is hoped the tax will motivate businesses to develop more sustainable packaging for the manufacture, transport and retail of goods. Within the food industry we may also see behavioural changes to business operations and end product consumption as a result of changes to packaging.
What is classed as plastic packaging for the purpose of the tax?
For the purposes of the Plastic Packaging Tax, plastic means a polymer material to which additives or substances may have been added. If a plastic packaging component is made from multiple materials but contains more plastic by weight (including additives which form part of the plastic) than any other substance, it will be classed as a plastic packaging component for the purposes of the tax.
The new tax will also apply to polymers which are biodegradable, compostable and oxo-degradable, meaning ‘greener’ packaging will not automatically be exempt. However, it will not apply to any plastic packaging which contains at least 30% recycled plastic, or any packaging which is not predominantly plastic by weight.
This is a new tax that will apply to plastic packaging entering the UK market whether manufactured in, or imported into, the UK.
How will food and farming businesses be affected by the Plastic Packaging Tax?
It is expected to affect UK manufacturers of plastic packaging, importers of plastic packaging, business customers of manufacturers and importers of plastic packaging, and consumers who buy plastic packaging or goods in plastic packaging in the UK.
As such, the Plastic Packaging Tax will be felt in many sectors of the UK economy and right through the food supply chain from farmer and agribusiness to logistics and grocer.
How much will the Plastic Packaging Tax cost?
The tax has been set a rate of £200 per tonne on plastic packaging placed onto the UK market which contains less than 30% recycled plastic content. To mitigate against disproportionate administrative burdens in comparison to the tax liability for those who are likely affected, there will be an exemption for manufacturers and importers of less than 10 tonnes of plastic packaging per year.
Who is liable for the tax on plastic packing when products pass through a supply chain?
The taxable business is the one that completes the ‘last substantial modification’ to the plastic packaging component. If the last substantial modification is made at the point where empty packaging is filled with product, then it will be the last substantial modification prior to this.
Due diligence will need to be carried out at the tax point. If a business buying plastic packaging components believes the tax should have been paid by a supplier and it is not clearly evidenced on invoices, that business may be subject to secondary liability.
Taxable businesses will be expected to hold detailed information on packaging components which will likely include total weight of plastic packaging, weight of plastic packaging incorporating at least 30% recycled plastics and formulas for plastic packaging to evidence which components are subject to taxation. Businesses may also be expected to carry out due diligence on their supply chains to increase transparency in the production of plastic packaging material and ensure tax calculations submitted to HMRC are accurate.
Are there any exemptions to the Plastic Packaging Tax?
The tax will apply to plastic packaging designed for use in the supply chain and single use consumer packaging. Packaging covered by the tax includes products which enable goods to be contained, protected, handled, presented and delivered. For example: yoghurt pots, shrink wrap, plastic labels, reusable plastic crates, bin liners and plastic glasses.
There are only 3 types of plastic products which meet the definition of packaging but are excluded from the tax. These do not need to be included when calculating the total weight of packaging manufactured or imported. They are products which are deigned to be used for long-term storage, are an integral part of the goods (this does not apply to ready meal trays) or are reused for the presentation of goods.
Mark Lumsdon-Taylor, Partner at MHA MacIntyre Hudson and RPG Founder comments
Mark Lumsdon-Taylor, Partner at MHA MacIntyre Hudson says: “The ban on single-use plastic straws which was introduced in 2020 demonstrated how nimble, quick to act and innovative businesses can be with the right incentives. At the time, many commentators questioned whether the policy went far enough in addressing the ‘throw away culture’. The Plastic Packaging Tax due to be introduced next April is the next step in supporting a transition to more sustainable consumption.
“Businesses will be considering their response to the incoming tax. We are unlikely to see costs passed on to the consumer in such a highly competitive and price-inelastic sector as food. So, many affected businesses from manufacturers to retailers will be evaluating their use of plastic packaging with a view to changing packaging designs or switching to packaging components which are exempt from the tax.
Mark Lumsdon-Taylors continues: “Most businesses will be forced to absorb the costs associated with changing packaging and may face some disruption in their supply chains, manufacturing facilities and logistics operations. Businesses within the supply chain will need to collaborate to achieve the best outcome for financial performance and security of supply.
“There is an exemption for organisations which use less than 10 tonnes of plastic per year and this will help protect smaller businesses from the administrative burden and financial liability of the tax. However, with product innovation in packaging manufacturing and consumer demand for more ethical products, I feel certain we will see the benefits of this policy trickle through to all businesses, particularly in the product the consumer sees, such as a yoghurt pot or the shrink wrap that holds a multi pack of beans together”.
It is important for any business which suspects they may have a liability to speak to their tax advisors in the first instance and begin an audit of its plastic packaging consumption.
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