Introduction of Plastic Packaging Tax from April 2022
Updated 20 July 2021
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Who is likely to be affected
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.
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.
General description of the measure
This is a new tax that will apply to plastic packaging manufactured in, or imported into the UK, that does not contain at least 30% recycled plastic. Plastic packaging is packaging that is predominantly plastic by weight.
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.
Imported plastic packaging will be liable to the tax, whether the packaging is unfilled or filled.
Policy objective
The aim of the tax is 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 this will stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
Background to the measure
At Budget 2017, the government announced a call for evidence into using the tax system or charges to tackle single-use plastic waste and received 162,000 responses.
At Budget 2018, a new tax on plastic packaging with less than 30% recycled plastic was announced. The government launched a consultation in February 2019 seeking input on the initial proposals for the design of the tax. A summary of responses was published in July 2019.
At Budget 2020, the government announced key decisions on the design of the tax, and HM Revenue & Customs (HMRC) launched a consultation on the more detailed design and implementation of the tax.
On 12 November 2020, the government published the draft primary legislation for technical consultation, alongside a summary of responses for the consultation held earlier in 2020. Feedback from the technical consultation was used to amend the primary legislation.
Primary legislation was included in Finance Bill 2021 and received Royal Assent 10 June 2021.
The tax information and impact note on the tax published on 3 March 2021 is superseded by this note.
Detailed proposal
Operative date
The tax will take effect from 1 April 2022.
Current law
Part 2 of the Finance Act 2021 contains the primary legislation that established a Plastic Packaging Tax. It includes the power to amend the meaning of a packaging component in respect of the tax.
Proposed revisions
The Plastic Packaging Tax (descriptions of products) Regulations 2021 removes three categories of products from the meaning of a plastic packaging component and add a further category of products to the meaning. These regulations will ensure the tax is properly targeted.
The Plastic Packaging Tax (descriptions of products) Regulations 2021 and corresponding explanatory memorandum have been published for consultation.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| – | – | +235 | +235 | +225 | +210 |
These figures are set out in Table 2.2 of Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2020.
Economic impact
This measure is not expected to have any significant macroeconomic impacts. The tax will provide a clear economic incentive for businesses to use recycled plastic material in plastic packaging, which will create greater demand for this material and in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.
An adjustment is made to account for a behavioural response to the policy, most significantly an increase in the recycled plastic content of plastic packaging… Smaller behavioural adjustments include business behaviour such as reducing plastic packaging use, and consumer reduction of purchases of products containing plastic packaging.
Impact on individuals, households and families
This measure is not expected to impact individuals unless businesses pass on the charge. It is expected that even if all the tax is passed on to individual consumers, the cost to consumers will be small as plastic packaging usually makes up a very small amount of the total cost of goods. On this basis we expect customer experience to stay broadly the same. There is not expected to be any impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that this measure will impact on groups sharing protected characteristics.
Impact on business including civil society organisations
It is expected that the impact of the new Plastic Packaging Tax on businesses will be significant. There is expected to be no impact on civil society organisations.
The tax is expected to impact on an estimated 20,000 manufacturers and importers of plastic packaging. One-off costs include familiarisation with the new rules, training for staff, registration with HMRC, and developing the required reporting framework to complete tax returns.
Continuing costs could include completing, filing and paying tax returns, keeping appropriate records (including those required to claim the export credit), and amending returns. There will also be new registrations and de-registrations each year. In addition, joint and several liability requirements mean some businesses or civil organisations will need to conduct due diligence on their supply chain or take action following notification of wrongdoing by a taxpayer they are connected with.
These regulations, which ensure the tax is properly targeted, are expected to have a negligible impact on business beyond those set out above. Business experience with HMRC could be negatively impacted as this is a new tax that businesses will need to understand and comply with. However, to support businesses HMRC will develop clear guidance and other tools to help businesses understand and meet their obligations.
The average annual net increase in continuing administrative burden for businesses is estimated to be £0.4 million. This is largely for costs related to completing returns, but also includes the costs of new registrations after the commencement of the tax.
Estimated one-off impact on administrative burden (£m)
| One-off impact | (£m) |
|---|---|
| Costs | Negligible |
| Savings | – |
Estimated continuing impact on administrative burden (£m)
| Continuing average annual impact | (£m) |
|---|---|
| Costs | 0.4m |
| Savings | – |
| Net impact on annual administrative burden | +0.4m |
Operational impact (£m) (HMRC or other)
HMRC expects to incur one-off capital costs to develop the system for collecting the tax. There will also be continuing resource costs for HMRC to implement this change, monitor compliance and meet customer service needs.
HMRC will incur estimated capital costs of £10-20m developing a new system to support this tax, together with £22m in staff and other resource costs. An updated assessment will be published if this impact significantly changes.
Other impacts
Justice Impact Test
In line with other taxes, there will be civil and criminal penalties for failing to comply with the tax, including penalties for failure to register, failure to file returns and failure to pay the tax. A full Justice Impact Test has been completed, with the overall impact likely to be minimal.
Environmental impact assessment
The rationale of this tax aims to increase the use of recycled plastic in plastic packaging and it is estimated that as a result of the tax the use of recycled plastic in packaging could increase by around 40%. This is equal to carbon savings of nearly 200,000 tonnes in 2022 to 2023, based on current carbon factors.
Estimates of behaviour change have been noted as including a high degree of uncertainty by the Office for Budget Responsibility. The policy may also help to divert plastics from landfill or incineration, and drive recycling technologies within the UK.
Other impacts have been considered and none has been identified.
Monitoring and evaluation
Consideration will be given to evaluating aspects including the rate, threshold and exemptions of the policy after at least one year of monitoring data has been analysed and collected.
Further advice
If you have any questions about this change, please contact Denise Welsby by email: indirecttaxdesign.team@hmrc.gov.uk.
Declaration
Kemi Badenoch MP, Exchequer Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.