ICAEW.com works better with JavaScript enabled.

TAX NEWS

More information on new plastic packaging tax

Article

Published: 15 Sep 2021 Update History

HMRC has published additional support for businesses that manufacture and import packaging to help them understand whether they need to register and are liable for the plastic packaging tax from April 2022.

Announced at Budget 2018, the plastic packaging tax will come into force on 1 April 2022 and apply at a rate of £200 per metric tonne for UK businesses that manufacture or import 10 tonnes of plastic packaging over 12 months.

The tax applies to packaging that contains more plastic by weight than any other single material and the definition of plastic includes biodegradable and compostable plastics. However, packaging that contains at least 30% recycled plastic is exempt.

In an update to existing guidance on the new tax, HMRC has provided greater clarity on when a packaging component is finished. This is important because in the case of manufacturing in the UK it is the business that completes the “last substantial modification” before it is packed and filled that is liable for the tax.

If a business imports a finished plastic packaging component into the UK (including importing packaging that already contains goods), the importing business is liable for the tax.

Section 2.4 of the guidance, now provides a non-exhaustive list of examples of the kinds of manufacturing processes that qualify as a substantial modification, including extrusion, moulding and printing. It also confirms that the last substantial modification would be one that makes a “significant change to the nature of the packaging component”, either by altering its shape, thickness, weight or structure.

The new guidance also provides examples of manufacturing processes that are not considered a “substantial modification” under the legislation, such as cutting individual plastic trays from a larger pre-formed sheet.

Alongside updating its online guidance HMRC has published two decision trees for businesses that remain unsure as to whether they are liable to pay the tax. The first enables businesses to check whether the packaging they manufacture, or import, is in scope and the second checks whether they are liable to and need to register for the tax.

Businesses may need to register for the tax and keep records on packaging manufacture and import, even if they are ultimately not liable to pay any tax (for example, because the packaging contains at least 30% recycled plastic or is exempt for any other reason).

HMRC’s guidance confirms that businesses that import or manufacture less than the 10-tonne threshold will also be subject to record-keeping requirements to evidence that they have not breached the 10-tonne threshold.

Primary legislation for the plastic packaging tax is Finance Act 2021 (ss 42-85 and Schs 9-15), however, secondary legislation will also be enacted and further guidance will be published in due course. Draft statutory instruments were issued for consultation on 20 July 2021 to refine the categories of products that are plastic packaging components and the meaning of substantial modification. Therefore, the guidance may change again to reflect the evolving definitions.

More support on tax

ICAEW's Tax Faculty provides technical guidance and practical support on tax practice and policy. You can sign up to the Tax Faculty's free enewsletter (TAXwire) which provides weekly updates on developments in tax.

Sign up for TAXwireJoin the Tax Faculty
ICAEW Know-How from the Tax Faculty

This guidance is created by the Tax Faculty, recognised internationally as a leading authority and source of expertise on taxation. The Faculty is the voice of tax for ICAEW, responsible for all submissions to the tax authorities. Join the Faculty for expert guidance and support enabling you to provide the best advice on tax to your clients or business.