Introduced to the UK in April 2022, Plastic Packaging Tax is still a relatively new and unknown tax, with many businesses unaware of their registration obligations. PKF Smith Cooper’s team of VAT and Indirect Tax accountants continue to support businesses in interpreting the new regulations to ensure they are compliant.

The background

What is Plastic Packaging Tax?

Plastic Packaging Tax (PPT) came into force in April 2022. You must now register for the new tax if you import or manufacture 10 tonnes or more of plastic packaging. In addition, if you manufacture or import plastic packaging components that contain less than 30% of recycled plastics, you must also pay PPT.

The current Plastic Packaging Tax rate is charged at £200 per tonne.

It is estimated that this tax will impact over 20,000 businesses across a range of sectors. Due to the complex nature of PPT, a large number of business owners continue to struggle to understand their obligations and liabilities.

Find out how our VAT and Indirect Taxes team has helped businesses with their PPT compliance below.

Our client

As a large East Midlands based food grower, packer and distributor, our client supplies some of the UK’s biggest wholesalers and supermarkets.

The VAT and Indirect Taxes team at PKF Smith Cooper were approached by our client who was seeking advice after they incurred a recharge of PPT from a supplier who manufactures and supplies them with plastic crates used for handling produce within the warehouse.

The issue the client faces relates to the open interpretation of the wording of the PPT legislation. As the crates are only used to move the produce around the client’s site rather than in the onward supply to the customer, they felt the plastic crates do not meet the requirements under PPT.

However, in addition to this issue our review also raised the question as to whether our client should be registered for PPT due to importing plastic packaging themselves.

How we helped

Due to the scale of our client’s operations and the complexities of PPT, we believed the best approach was to conduct a detailed site walkaround to:

  • Identify all plastic used on-site
  • Understand how plastic is used within the growing, packing and distribution processes
  • Understand which plastic components were imported into the UK
  • Understand the quantity and composites of plastic packaging imported

Following our site visit, we found that our client does import plastic packaging above the 10-tonne threshold but due to way that it is used within the business it is exempt from PPT.

As PPT is a somewhat new tax, we wanted to provide our client with confirmation of their potential reporting obligations, therefore we submitted a clearance to HMRC setting out our analysis.

Within this request, we also sought clarity on whether the plastic crates supplied to the client should be subject to the tax on the basis that they are not used from end-to-end within the supply chain.

 The results

Following our request, HMRC agreed with our interpretation of the law and confirmed that the imported plastic was exempt from the tax due to the way it is used. However, we were informed that our client must still register for the tax, as they exceeded the 10-tonne threshold, to submit nil returns.

Regarding PPT on the plastic crates, HMRC clarified that the crates are subject to the tax as the PPT taxes any plastic packaging component used at any point within the supply chain. The fact that the supplier recharged the tax was a commercial decision for them.

Through our expert guidance and training, our client is now fully aware of their PPT requirements, what they need to monitor in terms of future use of plastic packaging and when it may be subject to the tax.

We continue to assist our client as they undergo the registration process for PPT, which will help them avoid penalties that can still be applied even if there is no actual tax liability.

Commenting on the application of Plastic Packaging Tax, PKF Smith Cooper Partner Gavin West, who heads up the VAT and Indirect Tax, stated: “The commercial approach adopted by our team allowed us to fully understand how relevant products are used by the client within their business. PPT is new and remains open to interpretation. I am not convinced that the purpose of the tax is to create an obligation for companies to register when products used by them are wholly exempt.”

Businesses are facing multiple challenges in the current climate without having to incur more red tape by registering and reporting for PPT where there is no liability. In addition, it will put HMRC under further pressure in having to resource the handling of these potentially unnecessary PPT registrations when they are already struggling to deal with indirect tax submissions across the majority of their departments

Gavin West, VAT and Indirect Tax Partner, PKF Smith Cooper

Speak to our VAT and Indirect Tax team

Many businesses across the UK remain unaware of their new PPT obligations, putting them at risk of both financial and criminal penalties.

At PKF Smith Cooper, we can help you take control of your tax obligations and keep your business complaint to ensure you avoid any costly repercussions.

For more information on Plastic Packaging Tax and what the implications are for your business, contact our VAT and Indirect Taxes team today.