Plastic packaging tax – HMRC sets out compliance framework

HMRC has published further information on the operation of the plastic packaging tax (PPT), which comes into force on 1 April 2022. Manufacturers and importers of plastic packaging products will be required to pay PPT at £200 per tonne on ‘chargeable plastic packaging components’ that fall within the scope of the new tax. In the November 2021 edition of Tax Voice, we outlined how PPT will work and which businesses could be affected. HMRC’s newly issued draft regulations and guidance now provide more details of whether and when affected businesses must register for and pay PPT and the demanding record keeping requirements of this new tax.

There is a great deal of information for importers and producers to get to grips with, but some key points are summarised below.

The registration threshold

Organisations must register for PPT if they have either manufactured or imported 10 tonnes or more of finished plastic packaging components within the last 12 months, or will exceed that threshold in the next 30 days alone. Businesses must apply to register within 30 days of meeting this test and pay PPT on taxable packaging from the date the test was met.

It is important to note that the 12-month ‘look back’ test only applies to plastic packaging produced or imported after 1 April 2022 - items produced or imported before that date are not included in the turnover calculation. This suggests that only large-scale producers/importers of plastic packaging will be obliged to register for PPT as soon as the new tax comes into force. However, every business that manufactures or imports potentially taxable products will have to start keeping records of these from 1 April 2022. These records will be necessary to evidence periods when they are operating below the PPT registration threshold and/or to pinpoint the moment when they become liable to register.

An online portal for registration applications will open on 1 April 2022. When registering for PPT, applicants must provide HMRC with an estimate of the expected tonnage of finished plastic packaging components they expect to produce or import over the following 12 months.

What materials count towards the registration threshold, and what is actually subject to PPT?

The 10-tonne threshold applies to ‘finished plastic packaging components’ that:

• are incorporated in packaging materials that are made predominantly from plastic according to the methodology set out by HMRC; and
• have undergone their final ‘substantial modification’ to turn them into packaging, - eg moulded into shape or pressed into sheets.

Where a taxpayer imports or manufactures packaging products containing plastic components, the weight of which exceeds the threshold, they will be liable to register for PPT. However, although details for all plastic components of such products must be reported on PPT returns, some of them will not be chargeable to tax, such as plastic components that include at least 30 per cent recycled plastic, components of packaging that is in immediate contact with human medicinal products or packaging that is intended for export.

The draft regulations and guidance include detailed information on how to determine (and demonstrate to HMRC) the plastic content of packaging for PPT purposes, the level of recycled plastic content in such products, and whether a plastic component is substantially modified.

The regulations also confirm how the PPT deferrals and credits systems will work on plastic packaging components exported from the UK within 12 months of their manufacture or import, and give details of the evidence that must be retained of both the intention to export and the eventual export.

The exemption for transport packaging used to secure the safe transit of goods on import has also proved to be more complicated than initially thought. The exemption only extends to tertiary packaging, such as pallet wrap to secure consignments of products to pallets, and does not include any primary or secondary packaging. Businesses importing goods into the UK will therefore need to be able to differentiate between primary/secondary packaging, which may be taxable, and tertiary transport packaging which is exempt by virtue of its use.

PPT returns and payments

PPT accounting periods will be aligned to calendar quarters and PPT registered organisations must submit their PPT return and pay the tax due to HMRC no later than the last working day of the month following the end of the accounting period. Deadlines for submission of returns and payment of tax will therefore occur on 31 January, 30 April, 31 July, and 31 October.

• The PPT return must declare the following information.
• The total weight of chargeable material manufactured in the UK.
• The total weight of chargeable material imported into the UK.
• The combined total weight of finished plastic packaging material that is not subject to PPT and the total weight of each element, and that information must be broken down into sub-categories, being:
  • finished plastic packaging that that contains at least 30 per cent recycled content;
  • finished plastic packaging components manufactured or imported for use in the immediate packaging of licensed human medicines; and
• chargeable material that has been or is intended for export.
• The total value of taxed materials for which a credit is being claimed.
• The total weight of taxable materials after deducting the weight of materials not subject to PPT, previously taxed materials for which credit is claimed and materials intended for export.
• The PPT due to HMRC (this will be calculated automatically based on the information provided).

This confirms that businesses will be required to keep ongoing weight records of non-taxable material as well as that on which they must pay PPT. HMRC will prescribe a standard method for weighing material for PPT purposes, although businesses may ask HMRC to approve a special method with HMRC if the standard method is not suitable. The weights included in PPT returns must be stated in kilogrammes and PPT records must be kept for at least six years.

What happens next?

Although HMRC may still make some minor tweaks to the rules before PPT comes into force, the legislation now seems to be substantively in place and businesses that believe they will be affected should press ahead with their plans to comply with the new tax.

April 2022 is fast approaching, and a lot of businesses are finding the collection of PPT data to be a particularly complex task. We would recommend businesses begin looking at the data they hold, and what might be missing, as soon as possible to ensure they are able to accurately prepare PPT returns from 1 April 2022.

As identified in the November 2021 edition of Tax Voice, businesses should:

• carry out an assessment of whether and to what extent they will have a liability to PPT by analysing the quantity and nature of the plastic packaging materials they import or manufacture;
• review supply chains to consider whether efficiencies can be achieved;
• create systems to ensure compliance with the new record-keeping requirements;
• decide who will be responsible for PPT compliance; and
• prepare staff training in relation to the new rules.

For more information, please get in touch with Anne Holt, Grace King, or your usual RSM contact.