The Plastic Packaging Tax became law on 1st April 2022 and affects most companies that handle plastic in some capacity. Chances are, that includes you.
As packaging experts with the unique advantage of having our own Kite Environmental Solutions team, we are perfectly positioned to lead your business through the regulations. This guide will explain what the tax is, how it works and how you can best navigate it through a greater understanding of its intricacies. As the only employee share-owned company in our sector, we are committed to finding solutions that will benefit both your company and the environment.
Firstly, we will explain what is obligated so that you can establish the effect this new tax may have on your business. Next, we outline where the tax point is to determine who in the supply chain is liable.
These considerations are illustrated in a series of scenarios depicting how different types of companies are impacted. These case studies answer a number of common questions while presenting how the tax will look in practice.
As a workable understanding of the new tax has been established, we delve into methods of minimising your liability to keep costs low. Under our approaches of reduce, reuse, recycle and replace, we assess the varying ways companies can respond to the change and the differing degrees of success they may generate.
For example, the tax does not apply to plastic that has 30% recycled content. This stipulation serves to incentivise businesses to use recycled material, thus encouraging the long-term development of the UK’s recycling systems. Yet, ironically, such a generalised approach is not always helpful to our environment. Therefore, we will investigate the often counterproductive outcomes of taking certain routes while exploring economically and sustainably superior alternatives.
Based on this wealth of specialised knowledge, we have unapologetically dubbed our guide ‘essential’. The specifications of the tax are rife with complexities that you aren’t expected to decipher on your own. This information and the professional services of Kite’s teams are at your disposal regardless of how the tax affects your business; simply get in touch.
Contact the team on 02476 420 080
The plastic packaging challenge
Understanding the Plastic Packaging Tax
The plastic packaging challenge
Plastic is a hero material we would struggle to live without and at the same time, the world’s nemesis.
Positively, it enables us to manufacture goods, preserve food, and protect a host of products. But at the end of its life, it has the potential to damage our planet’s ecosystems with plastic waste being dumped on land, in our rivers and throughout the world’s oceans.
The problem
The global challenge for individuals and governments is identifying how we can better manage plastic waste. Since 1997 the UK has had the Producer Responsibility Regulations in place to drive recycling of packaging waste. This put a charge on businesses for the cost of recycling when they introduce plastic packaging (along with other materials) into the UK. This has led to increased recycling but with limited further gains.
As of 2023 the UK has moved towards a circular economy, which seeks to drive recycling and reuse further by designing this into the packaging from the start. This has been further legislated through the new Extended Producer Responsibility Regulations which will penalise packaging that is non-recyclable or difficult to recycle.
For the UK to be seen as an environmental world leader, we need to show ambition. The UK has to keep developing its domestic recycling infrastructure so that all plastic waste is reprocessed in the UK. This will drive the use of recycled material and prevent dumping of waste sent overseas for reprocessing, often to less developed countries.
The Plastic Packaging Tax (PPT), presented by the government as “world leading”, encourages the use of recycled plastic instead of virgin materials. However, it could be argued that the tax falls short as it is part of the government’s general tax take, when it could be used to fund the development of recycling in the UK.
Understanding the Plastic Packaging Tax
The Tax is charged at a varied rate per tonne of plastic packaging handled depending on the submission year
Cost per
Cost
£200 per tonne
£210.82 per tonne
Submission period
What is defined as plastic?
The tax defines plastic as any material consisting of a polymer, whether derived from oil or from renewable sources such as sugar cane.
1st April 2023 - 31st March 2024
1st April 2024 - 31st March 2025
£217.85 per tonne 1st April 2022 - 31st March 2023
£223.69 per tonne
1st April 2025 - 31st March 2026
The tax only applies to plastic packaging which contains less than 30% recycled plastic by weight, calculated on a ‘per component’ basis.
The types of plastic packaging affected by the tax include:
— plastic packaging manufactured in the UK imported plastic packaging imported filled plastic packaging
There are a few exemptions which are out of scope of the tax, they include:
Transport packaging to import goods
(e.g. pallet wrap around an imported pallet of goods)
Packaging set aside for non-packaging use
(e.g. silage film)
This definition incorporates all compostable, biodegradable or oxodegradable plastics.
Where you have a composite packaging item and the majority material by weight is plastic, then the weight of the whole item is treated as being plastic for the purpose of the tax.
Allowable recycled plastic
Recycled plastic is plastic that has been reprocessed from recovered material by using a chemical or manufacturing process.
There are two types of recovered material:
pre-consumer plastic (material from waste generated in a manufacturing process)
— post-consumer plastic (material generated by the end user of the product)
Pre-consumer waste must be processed by a separate reprocessing facility, which could be on the same site as the manufacturing process. However, a company cannot simply take waste or regrind from the end of a manufacturing line and feed it into the input of the same manufacturing process and claim it is recycled.
The recycled content is calculated per component using the following equation:
Plastic packaging components
There are two types of plastic packaging subject to the tax, that is, those designed to be suitable for:
use in the supply chain single use by the consumer
Within this, if your packaging is made up of several components, you must account for the tax on each component.
Each component must contain 30% or more recycled content or be subject to the tax. The recycled content is not calculated on the overall pack.
Summary of what is obligated
Manufactured
Plastic packaging you manufacture in the UK
Counts towards the 10 tonnes
Plastic packaging that:
— contains less than 30% recycled plastic (taxable)
— contains 30% or more recycled plastic is exported is immediately around licenced human medicine is used for non-packaging applications
Imported
Plastic packaging you import into the UK
Data to be reported each quarter (Jan, Apr, July, Oct)
10 tonne de minimis
Imported filled
Plastic packaging around goods you import into the UK
Does not count towards the 10 tonnes
Plastic packaging that:
— is transport packaging for road, rail, ship or air
— is imported transport packaging for multiple sales units is used in aircraft, ship and rail retail stores is durable, or an integral part of the goods is re-used for the presentation of goods
The tax point
The tax point is when the plastic packaging component is finished, which means it has been:
manufactured or finished in the UK imported finished into the UK
Manufacturing is finished if it has undergone its last substantial modification. There are a host of technicalities around this but a substantial modification is typically defined as when any of the features listed below are changed:
When is the tax paid?
Companies will need to register with HMRC when they meet either of the following conditions:
— They manufactured or imported more than 10 tonnes of finished plastic packaging in the last 12 months
If a company imports plastic packaging components which have already undergone their last substantial modification, they will be considered finished and the tax will be due by the importing company.
The following changes to packaging are not considered to be a substantial modification:
Blowing (preforms) Labelling Cutting Sealing
If a company performs the last substantial modification at the same time that it uses the packaging for pack/filling then the obligation goes back up the chain to the previous last substantial modification.
— Looking forward, they will manufacture or import 10 tonnes or more of finished plastic packaging in the next 30 days
Once either of the conditions has been met, a company has 30 days to get registered. They will, however, be required to report data from the date they met the tests and be liable for any tax due from this date.
Registered companies will need to submit quarterly Plastic Packaging Tax returns in July, October, January and April.
How different companies are affected
A UK plastic packaging manufacturing business
This case study takes a look at a UK manufacturer of plastic packaging films from 1st April 2022. The business buys polymer bead and extrudes it to make a range of plastic films. They also incorporate additives into the films they manufacture.
The manufacturer buys polymer from both UK and overseas suppliers in flexible plastic Intermediate Bulk Containers (IBCs).
All their finished goods are sold in the UK and Europe.
The tax angle
The polymer bead imported by the manufacturer hasn’t had its last substantial modification on import and is not obligated at this stage. However, the plastic flexible IBCs surrounding the polymer bead are obligated.
— Imported flexible IBCs
(not considered transport packaging on import)
The polymer bead is combined with additives, heated and then extruded to form the films, some of which are printed. This constitutes the last substantial modification and the tax will be due on the total weight of the film manufactured.
— Manufactured film
(including weight of polymers and additives)
The manufacturer sells their products into the UK market where some of their products are slit into different widths. Cutting does not count as a substantial modification, so the liability to pay the tax remains with the manufacturer.
Where goods are known to be directly sold to customers in Europe, the tax can be deferred for up to 12 months but the manufacturer must be able to evidence the exports.
Exported film
(a tax credit can be claimed if their customers export the unused film)
This case study involves a distributor of food and beverages. The company buys their products from both UK suppliers and a number of European suppliers.
The goods are received into their warehouse where they pick and pack orders for their customers in the UK who are a combination of retailers, pubs and restaurants.
The tax angle
(subject to due diligence by the distributor) A distribution business
The company buys some additional packaging to add to their goods for despatch, which includes some plastic packaging. This packaging has been purchased from UK suppliers only.
The distributor does not modify any of the finished goods they purchase for resale. Where these goods have been purchased from UK suppliers, the tax on any plastic packaging should have already been paid.
UK sourced finished goods
(subject to due diligence by the distributor)
However, the distributor must ensure the tax has been paid by their UK suppliers, or they could be held joint and severally liable for the tax.
Where the distributor imports finished goods (imported filled plastic packaging), they will have an obligation on any plastic packaging around those goods other than the exempt transport packaging (e.g. pallet wrap around imported goods).
Imported finished goods
(on all POS and outer plastic packaging around the goods)
The distributor purchases packaging to add to goods before despatching them to their UK customers. All of this packaging is sourced in the UK and therefore the tax should have been paid. Again the distributor would need to undertake due diligence, or they could be held joint and severally liable for the tax.
— Packaging added to goods
A plastic packaging importer
In this case study we look at Kite Packaging who import plastic packaging, some of which they use themselves, but the majority of which they sell on to end users and distributors.
The plastic packaging is received boxed in containers or as palletised loads into their warehouse. The goods are then picked to order, sold either by the box or pallet to customers in the UK and Europe.
The company holds a significant amount of stock for its customers.
The tax angle
The importer will not have any obligation on any products which clear customs before 1st April 2022, regardless of how long it takes them to sell the goods.
After the 1st April 2022, the importer will have to pay tax on the weight of imported plastic packaging products they have received for resale. In addition, they will be liable on any Point of Sale (POS) or outer plastic packaging surrounding the plastic packaging products.
Imported plastic packaging product
(on all plastic products whether sold or used in-house)
Imported POS & outer plastic packaging around the product
The importer will not have an obligation on any transport packaging surrounding the imported plastic packaging goods, as this is exempt. (e.g. pallet wrap).
Imported plastic transport packaging
(if the packaging is to prevent damage in transit and group multiple sales units)
For clarity, if the importer imports pallet wrap for resale this would be obligated.
Where the plastic packaging products are exported, the importer is able to defer paying the tax for up to 12 months, subject to them being able to provide evidence that the goods have been exported.
— Exported
(a tax credit can be claimed if their customers export the plastic packaging)
How will the tax affect prices?
The Plastic Packaging Tax affects all businesses and consumers and acts to inflate prices, whether you have an obligation or not.
Essentially, if you have plastic packaging, the tax impacts the price of the plastic packaging and any goods surrounded by plastic packaging. The tax may be paid directly (you pay the tax) or indirectly (the supplier pays the tax and adds it to your cost).
The material cost is impacted by either the tax being charged on the plastic component, or any on-cost involved by using recycled material.
The proportion of the price increase will then depend upon the proportion of non-material costs involved in manufacturing or importing the plastic packaging components.
However, eliminating the tax by ensuring you have 30% recycled content is not necessarily going to be cheaper as:
recycled material costs more than virgin material
— the performance of recycled material is less than virgin material (requiring more material to be used)
Therefore, manufacturing or using plastic products with 30% recycled content won’t necessarily save you money. It does, however, support recycling of plastic waste which is positive.
Commercial impact on a plastic packaging manufacturer
A plastic packaging company manufactures 8,560 tonnes of plastic packaging in the first year of the Regulations. They perform the last substantial modification on the packaging which is then used by their
The company exports 1,300 tonnes of their manufactured packaging outside of the UK during the year.
Plastic packaging manufactured
8,560 tonnes x £200 = £1,712,000
Plastic packaging exported within 12 months
1,300 tonnes x £200 = £260,000
Plastic Packaging Tax due
£1,712,000 - £260,000 = £1,452,000
Commercial impact on a drinks manufacturer
A company bottles soft drinks for sale within the UK: they blow their bottles on the production line and fill the packaging in the same process. All their bottle pre-forms are the same size and purchased from a UK supplier.
The company fills 1,450,000 bottles in the first year of the Regulations and each unit weighs 220g of plastic.
Plastic pack/filled
1,450,000 x 0.220kg = 319,000kg = 319 tonnes
As the bottles were purchased in the UK and the company hasn’t performed a substantial modification, there is no tax to pay. However, the tax would have been paid by their supplier and the amount will have been incorporated in the price the company paid for the preforms.
Tax incorporated into the purchase price
319 tonnes x £200 = £63,800
How to limit your liability
Regardless of whether you have 30% recycled content, your supplier pays the tax, or you pay the tax, there are really only two options to reduce your liability:
Use less plastic
Replace plastic packaging with another material
Using less plastic
By auditing the plastic you are using, it is possible to identify opportunities where you could reduce your plastic packaging consumption. Reduction is the best option when a non-plastic alternative either doesn’t exist or is not viable.
REDUCE
Are there any pack weight reduction opportunities?
One approach for minimising usage is to investigate whether you can manufacture plastic packaging that is lighter, whilst remaining fit for purpose.
For those who add packaging to goods, a key area to focus on is plastic pallet wrap.
Getting the correct film and machine combination is critical to using the minimum amount of plastic whilst ensuring that your pallet loads are safe. This requires a specialist load retention audit to look at your company’s current usage and how the pallets are wrapped.
Use of performance films which are stronger and lighter can have a significant impact on the weight of plastic used.
Pallet wrap audit on Kite’s Mobile Packaging Laboratory
Using returnable plastic packaging
Another approach which successfully reduces plastic usage is to adopt reusable packaging systems. This has been widely used in the automotive sector and now increasingly by other industries.
REUSE
Can any returnable packaging systems be introduced?
The advantage of reusable packaging, especially when just used within the UK, is that the plastic tax is only applied the first time a packaging item is manufactured in the UK or imported.
Plastic pallet box
Bale arm crates
Stackable plastic pallet box
Line-side packs
Replace plastic with other materials
Naturally, the best way to reduce plastic is to not use it at all. However, alternatives don’t currently exist for every plastic packaging item; pallet wrap, for example, does not have a direct material replacement. Yet, there is an increasingly wide range of plastic-free packaging available.
REPLACE
Are there opportunities to use more eco-friendly materials?
(e.g. paper instead of plastic)
The advantage for companies is this ticks multiple sustainability objectives, especially when plastic is changed to paper packaging.
Below is a selection of products that can readily be switched from plastic to paper.
Paper is manufactured using material from renewable sources or recycled pulp. At the end of its life, it is easily recyclable at an industrial level or within kerbside collections for householders. Furthermore, if it is accidentally littered it composts relatively quickly.
Gummed paper tape also has tamper evident properties, in addition to being 100% recyclable.
Standard plastic tape Gummed paper tape
Paper packaging alternatives to bubble wrap
Wherever you switch to a paper packaging alternative, not only do your customers perceive the packaging as being more environmentally friendly, but you also don’t have to pay any Plastic Packaging Tax.
Flexi-Hex®
Paper bubble
Hivewrap®
Hivewrap® dispensers
Is it ever better to just pay the tax?
The plastic packaging tax can only be paid for by an organisation that either manufactures the plastic packaging in the UK, imports the plastic packaging, or imports filled plastic packaging. A company is not able to pass the obligation on, or cover it on behalf of their customers.
That said, are there any situations where paying the tax, either directly or indirectly, is the best option? In short, the answer in some circumstances is YES.
Not all packaging can successfully include the 30% recycled content, without it impacting its purpose or performance.
Food contact packaging follows understandably strict rules and there are few cases where recycled content can be added. When it can be used it is often pre-consumer waste only.
The performance of plastic packaging can be significantly decreased by introducing recycled material. This issue is addressed by our performance pallet wrap films which use nano technology to produce a lighter, thinner film.
To introduce 30% recycled content into a performance film, you would need to add additional material to match its performance. In this instance, it is economically and environmentally better to use a product made from a virgin material.
Impact of recycled content for performance films
For this example, we consider a roll of performance hand film, used for wrapping pallets.
Where performance is secondary
For several plastic packaging items, the performance of the plastic is secondary or not as critical. In these situations, subject to the cost of recycled material, it may be more cost-effective to choose packaging containing at least 30% recycled content.
This film is 12 micron thick, 400mm wide and 300m long. If you were to add 30% recycled content to the film, its performance, measured by its elasticity and burst strength, reduces by around 8%.
To compensate for this you need to add in around 8% more virgin material. On a price per tonne basis this would equate to a price increase of at least 15%.
Taking the performance film alone, at around £2,500 per tonne, paying the tax would increase this by £200 if the first year of the Regulations. This would take the cost to £2,700 increasing it by just 8%, as opposed to the 15% when using recycled content.
So, adding 30% recycled content to a performance film increases the cost more than just paying the tax and you would use more plastic!
recycled content (reported, but no tax due)
Examples include: Mailing bags & sacks
Standard polythene or grip seal bags
How to comply
Companies need to make an assessment of the plastic packaging that they:
have manufactured in the UK
— have imported as plastic packaging
— have imported as filled plastic packaging
Against each plastic packaging component, a record of the recycled content must be made along with whether it is exempt (which needs to be recorded) or out of scope.
Threshold for registering
If in a 12-month period you plan to manufacture or import more than ten tonnes of plastic packaging in the next 30 days, you will need to register.
Any reporting periods for which you were obligated, but didn’t report to HMRC dating back to 1st April 2022, will have to be retrospectively accounted. Companies will need to register with HMRC directly, submitting their company details and an estimate of how much plastic packaging they anticipate using.
Quarterly submissions
If you are registered, at the end of each quarter you will need to submit to HMRC the total obligated plastic packaging from the previous quarter. This will be done in the months of January, April, July and October. You will need to submit the total weights of the following: contains less than 30% recycled plastic (taxable) — contains 30% or more recycled plastic
is exported
is immediately around licenced human medicine
is used for non-packaging applications
Check if you need to register
1
2
Do you manufacture plastic packaging in the UK?
(kg)
If your total (A+B+C) exceeds 10 tonnes within 12 months from 1st April 2022, you will need to register. Need
to register?
Do you import plastic packaging for your own use or to sell on?
3
Do you import filled plastic packaging? (i.e. plastic packaging around goods)
Base your initial calculation on the last 12 months to give you a rough guide as to whether your on-going business is affected.
Develop a data management system Monitor your business against the threshold test Assess your plastic tonnages by category Register with HMRC Submit quarterly returns
Getting support
The Plastic Packaging Tax is complicated. It goes further than the data required for reporting Packaging Producer Responsibility and many companies are likely to find it challenging.
Kite’s data management service
Kite is not registered with the FCA and as such we are not qualified to give tax advice. Instead Kite is offering a data management service, similar to that provided for the Packaging Waste Regulations and guidance on how the Plastic Packaging Tax affects your business.
Kite has nearly two decades of experience as a government accredited Compliance Scheme for the Packaging Waste Regulations. This gives us an advantage when it comes to managing the data required by HMRC.
Companies have three options for complying:
lowest cost
OPTION 1:
DIY submission (reliance on self, potentially higher risk)
highest cost
OPTION 2:
Use Kite’s data management service (compliance knowledge & packaging expertise)
OPTION 3:
Use an FCA authorised accountancy firm (tax advice, but limited packaging knowledge)
Kite’s environmental division (Kite Environmental Solutions Ltd), is part of the Kite Packaging Group, which means our packaging knowledge is second to none. This is extremely useful for companies seeking to register with HMRC for the Plastic Packaging Tax and who will need to complete quarterly returns.
If you would like to benefit from our packaging knowledge and data management service, please get in touch. We’ll be happy to help.
