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What is the UK’s incoming Plastic Packaging Tax

From April 2022, a new tax on plastic packaging will be in place in the UK. Which products will be affected, how much is it, what penalties and sanctions are in place if manufacturers don’t comply, and what steps should the industry be taking now?

What is the UK’s incoming Plastic Packaging Tax

Disclaimer: The below notes reflect opinion and views as of 02/11/2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.

Many of us make efforts to reduce our plastic usage in one way or another, but the UK government has now taken steps to target manufacturers and importers of plastic packaging by introducing a new plastic packaging tax (PPT); a tax, which, apparently, isn’t about revenue creation but has more exalted aims in mind – reducing the use of new plastics and increasing plastic recycling.

Which products will be affected by PPT?

PPT will be levied on plastic packaging that contains less than 30% recycled plastic. Imports of products in plastic packaging, such as drinks in plastic bottles, will also be caught. “Plastic packaging” will be classified as such if plastic is the heaviest component.

Rather surprisingly, given the environmental aims of PPT, “greener” plastics, such as biodegradable and compostable plastics, will still incur PPT (although this is currently being reviewed by the government) and the definition of “recycled plastic” does not include organic recycling.

Certain exemptions will apply, and PPT will not be incurred where the plastic packaging is for use:

  • With licensed human medicines
  • As transport packaging to import goods into the UK, e.g., packaging to secure the safe transit of goods
  • In aircraft, ship or railway stores for international journeys, i.e. not released into the UK.

Exported goods will also be exempt from PPT, provided that they are exported within 12 months.

How much is PPT?

The rate of PPT will be £200 per metric tonne of plastic packaging (that contains less than 30% of recycled plastic).

Who will pay PPT?

PPT will be charged from 1 April 2022 and potentially, everybody, from the largest plastic packaging manufacturer to the corner shop customer buying a packet of pasta, will see its effects. Although PPT will be levied on manufacturers and importers (both UK resident and non-UK resident) that manufacture (or import) ten metric tonnes of plastic packaging or more annually, the cost may well be passed along the supply chain to the end-consumers.

The draft legislation specifically provides that payment terms under existing contracts may be amended in order that the manufacturer or importer can pass on the PPT charge, although how this will affect business relations may well determine how often this option is used.

Any businesses that purchase plastic packaging (filled or not) should also bear in mind that liability for non-payment of PPT can be placed on other entities within the supply chain, i.e. not just the manufacturer or importer, if such entity “knew or had reasonable grounds to suspect that” PPT “had not been accounted for”. Government expects business customers to take “reasonable steps” to verify that payment has been made and intends to publish guidance on what constitutes adequate due diligence.

It would be no great surprise if this risk results in business customers requiring evidence of payment or some contractual assurance that payment has been made by the manufacturer or importer; requirements which will, no doubt, increase commercial complexity and the administrative burden on both parties. We must hope that the promised guidance will consider the commercial practicalities of such a provision.

What is clear is that contracts will need to specify whether costs are ex. PPT or inc. PPT, and invoices will need to state the applicable PPT amount.

Registration, filings and evidence

All manufacturers and importers of plastic packaging will need to register with HMRC unless they produce or import less than 10 metric tonnes in any 12-month period (regardless of the amount of recycled plastic that they use). The test to determine this is both forwards- and backwards-looking.

A business must register if:

  1. At any time after 1 April 2022, it expects to manufacture or import at least ten metric tonnes of plastic packaging in the following 30 days (registration must occur within 30 days of the first day that this condition is met); or
  2. It has manufactured or imported at least ten metric tonnes of plastic packaging in a 12-month period ending on the last day of a calendar month. If this applies, the business becomes liable for PPT from the first day of the next month and must register by the first day of the subsequent month. This second condition will initially be modified and will only look at the amount of plastic packaging which has been manufactured or imported from and including 1 April 2022.

(Imports that have not cleared customs or are not in free circulation in the UK are not included within these calculations.)

A group PPT registration is likely to be available and further details will be provided by government in due course, although it is expected that the ten metric tonnes test will be applied on a group basis, i.e. it will not be possible to disaggregate a business to avoid PPT. Where a group registration is made, all members of the group will be held jointly and severally liable for all the PPT debts of all group members.

Affected businesses will also be subject to increased record-keeping as they will need to maintain records to show:

  • The total amount in weight and a breakdown by weight of the materials used to manufacture the plastic packaging (excluding packaging which is used to transport imported goods)
  • The data and calculations used to determine if a packaging component is, for the most part, plastic and how much recycled plastic it contains
  • The weight of exempted plastic packaging and the reason for the exemption
  • The amount in weight of plastic packaging exported, and therefore the allowed relief from the tax.

Even where the recycled content test is met, businesses will need to register, file, and retain evidence to show that the relevant plastic packaging meets the threshold (plastic packaging will be assumed not to meet the recycled content test unless it is shown to do so).

Penalties and sanctions

Various civil and criminal sanctions and penalties apply under the draft legislation depending on the nature and severity of the offence. For example, failure to register with HMRC, failure to complete the requisite filings, or failure to pay the PPT due will incur a penalty.

Practicalities

Manufacturers and importers of plastic packaging should start to consider how the PPT regime will affect them and bear in mind that some effects may not be purely financial. For example:

  • How much plastic packaging manufactured/imported will be taxed, i.e. how much currently falls foul of the 30% recycled plastic requirement?
  • Consequently, what is the likely PPT liability?
  • Who will bear this liability – the manufacturer/importer or their customers? And what conversations need to be had with customers in this regard?
  • Can this liability be mitigated in any way, for example, an increase in the use of recycled plastic?
  • How will the information required to determine the amount of PPT payable be documented, evidenced, and recorded?
  • Who in the business will be responsible for complying with PPT requirements, collating the evidence, maintaining the records, and dealing with HMRC?
  • Who will liaise with customers regarding increased costs and evidential requirements?
  • What staff training will be required in relation to the new PPT legislation?

Disclaimer:

This note reflects opinion and views as of 02/11/2021 and is a general summary of the legal position in England and Wales. It does not constitute legal advice.

Smurfit Kappa rejects a bid from International Paper

Smurfit Kappa has received an unsolicited acquisition proposal from International Paper (IP), which it has rejected.Smurfit Kappa rejects a bid from International Paper

IP reportedly proposed to acquire Smurfit Kappa, and Smurfit Kappa shareholders would receive a combination of cash and a minority holding in the combined business.

Europe’s largest cardboard box maker Smurfit Kappa said the proposal “fails entirely to reflect the Group’s strong growth prospects and attractive industry outlook” – which could leave the door open to an improved offer being considered in the future.

Smurfit Kappa’s enterprise value is about €9.8bn, according to FactSet data.

The board of Smurfit Kappa said after considering the proposal it was in the best interests of the Group’s shareholders to pursue its future as an independent company.

Smurfit Kappa recently announced EBITDA for 2017 of €1.2bn and a full year ROCE of 15%.

Plcs are obliged to ensure there is not a false market in their shares. It also increases the pressure on the bidder to comply with relevant regulatory timelines. This may have contributed to SKs decision to make the approach public.

Such a deal would create a super-group paper company and would mean a review of the deal by numerous competition authorities given the scale of the transaction and the spread of the two companies’ footprints. However, it may be deemed that these are more complementary than overlapping or there may be approval conditional on a number of divestitures. The Ball-Rexam mega deal approval also stipulated certain divestitures.

Liam O’Mahony, chairman of Smurfit Kappa said: “The Board of Smurfit Kappa has unanimously rejected this unsolicited and highly opportunistic Proposal.

“The Board believes that it is in the best interests of all stakeholders for the Group to pursue its future as an independent company, headquartered in Ireland, operating as the European and Pan-American leader in paper-based packaging. We strongly advise shareholders to take no action.”

International Paper did not comment.

Nicholas Mockett, head of packaging M&A at Moorgate Capital, said: “It is a strong rebuttal of the approach which may ensure IP walks away at this stage. A plc has a duty to shareholders to give due consideration to a legitimate approach. If IP increased its offer Smurfit Kappa would therefore reassess. The approach is not surprising given Smurfit Kappa’s strong position in Europe and Latin America and IPs strengths in North America. IP has recently increased its core focus, with the recent Graphic Packaging transaction.”

Businesses are not looking to reduce packaging costs

A recent nationwide YouGov survey conducted for Davpack Packaging has shown that 95% of small businesses are not looking to reduce packaging costs.

Businesses are not looking to reduce packaging costs

The survey, conducted in July, showed, however, that 36% of decision-makers in over 1,100 small and medium-sized businesses are actively looking to cut their business costs in the near future. With most of the responses citing leaving the E.U. as their key reason for cutting costs, the survey shows that packaging is an area that is least likely to be cut. Staffing, marketing, and professional services respectively, have shown to be areas that are more likely to be cut ahead of the country’s political future.

While this may mean a slow decline in the employment or service industries outside the packaging industry, most SME’s decision makers are positive about the future of the packaging industry and are keen to ensure that their packaging continues to communicate and display their company’s values and beliefs to their customers.

Barney Byfield, managing director of  Davpack Packaging, commented: “We are in constant conversation with our customers about their business needs, and Brexit is often mentioned as an uncertainty. However, the indications are that the packaging market continues to expand and that customers don’t foresee a need to cut costs on this business essential. In fact, we are currently experiencing strong demand across the board, not just within economy packaging supplies, but also added value areas such as custom printed boxes and e-commerce solutions”

“However, many businesses do feel a need to offset the uncertainty around the future impact of Brexit with some cost reductions today as an insurance policy. We will continue to monitor the situation, because if companies feel more affected as Brexit gets closer, this is likely to affect business confidence and, in turn, demand for packaging supplies.”

Of the 5% who do want to target reductions in packaging, 31% cited that Britain leaving the EU was the main reason for this consideration. While the country’s decision stands, the packaging industry will see a shift in spending, but it can be assured that amongst SME’s the packaging industry will continue to use packaging as a marketing tool as the country presses forward.

Plastics companies rely heavily on EU workers

Plastics companies rely heavily on EU workers, says BPF survey. The plastics industry is highly reliant on EU workers and Brexit has pushed firms to automate some roles, according to a survey by the British Plastics Federation.

Plastics companies rely heavily on EU workers

The UK plastics industry is the third largest manufacturing sector in terms of employment, employing 166,000 people, of which, roughly 18,000 are non-UK EU citizens and 4,000 come from the rest of the world. EU workers account for roughly 11% of the entire workforce in the industry and one in five of all factory floor workers.

The survey showed that more than half of UK plastics companies rely on employing temporary workers during busy periods — and here EU citizens play a very prominent role, making up 48% of temporary workers. A quarter of the companies surveyed stated that they would like any new immigration policy to help them meet short-term, temporary needs.

Before the referendum, roughly half of UK plastics companies were having trouble recruiting. January’s BPF Business Conditions Survey showed that this has increased, with just under two-thirds of plastics companies now reporting difficulty filling key roles. The more recent survey, specifically about EU workers, shows that 10% of companies feel they are having trouble filling vacancies as a direct result of the EU referendum whereas 58% do not feel the result has affected their overall workforce.

The survey shows that factory floor staff and engineers are the toughest roles to fill and in order to plug the potential gap left by EU workers, 61% of companies say they may employ UK workers, 39% may train existing staff, while almost a third (29%) are also looking into the possibility of automating the roles.

Commenting on the findings, chairman of the BPF Brexit Taskforce, Mike Boswell, said: “Our industry has for some time experienced difficulty in finding the right staff for key roles and unfortunately Brexit appears to have made this situation worse. This survey has underlined the importance of EU workers in our industry.

“If companies that rely on temporary workers to fulfil their orders lose access to almost half of the temporary workforce, this will pose an enormous challenge. It is important that at this point companies are exploring all feasible alternatives, including investment in upskilling the existing workforce as well as the development and implementation of technology to automate roles, for which we will require further assistance from the UK government.”

The role of EU workers in the plastics industry survey was carried out in 2017 and was completed by almost 90 companies. To access the full survey, as well as a summary of the findings, visit: http://www.bpf.co.uk/eu/home.aspx

The benefits of packaging need to be heard

The benefits of packaging need to be heard. The world has changed enormously since INCPEN was established in 1974. Yet today, some of the issues the packaging industry has to deal with seem depressingly familiar.

The benefits of packaging need to be heard

 

One of the first challenges we faced in 1974 was the growing problem of litter, with environment groups blaming packaging. They were also critical of increasing consumerism and people’s changing lifestyles but they criticised packaging instead because this put the blame on industry, not individuals.

Litter, especially marine litter, remains a problem and packaging is still singled out as the main culprit. The reason given by politicians for introducing charges for carrier bags is typically to prevent them ‘spoiling the landscape’ as litter. The facts are conveniently ignored. According to the latest (2014) survey of litter by Keep Britain Tidy, commissioned by INCPEN, carrier bags were less than 1% of littered items. But the charge has set a precedent for adding costs to packaging and there are now campaigns to impose deposits on drinks containers and taxes on other types of packaging.

No one points out that there is a huge difference between a carrier bag charge, which can be avoided simply by using your own bag, and deposits or taxes which everyone has to pay. In response to the public’s negative perception of packaging, policymakers are tending to propose measures that typically focus on used packaging.

The industry needs to continue to develop clever packaging that responds to changing demographics, lifestyles and shopping habits and helps make supply chains more sustainable. But if companies want the freedom to be able to use the best pack for the job, they will also have to explain the role of packaging and that it has a net positive enviroment benefit in protecting more resources than it uses.