What’s the latest news on PPT?
The legislation and associated guidance have been published, but affected businesses are already encountering practical issues as the new tax commences. PPT will have the biggest impact on importers and manufacturers as they will be obliged to register for and pay the tax, but purchasers are also potentially affected.
As with many tax changes, we are encountering businesses are in many different stages of readiness - from those who are largely unprepared to those who are well-prepared but have specific concerns. The best time to have taken action was last year, the second-best time is now given that obtaining data, especially from overseas suppliers, is often proving to be a very time-consuming exercise.
This is a new tax, but a new tax with a difference. Historically, accountability for taxes (e.g. VAT and Corporate taxes) sits within the Finance team. Plastic Packaging Tax and its requirements are stretching the knowledge levels of Finance teams as they now need to have a detailed technical understanding of their business’s packaging supply chain and sales. This requires the involvement of other business teams, for example Procurement, Logistics, Sales and IT in order to understand in detail what packaging components are being imported, manufactured, purchased or sold. Therefore, the first decision to be made is where in the business primary responsibility for the PPT will sit.
This requirement for cross collaboration is not the only issue businesses are encountering. The tax puts a heavy burden of proof - businesses must capture exact data when it comes to record keeping requirements with, for example, proof is required where exemptions are claimed (such as 30% recycled pre- or post-consumer waste being used or certain uses like transport packaging) or for export credits. Where the administrative burden of evidencing entitlement to exemptions and reliefs is perceived to be greater than the tax cost, some businesses are even contemplating just paying the tax as a time saving measure. That will become an increasingly costly policy where, over time, the rate of PPT rises and the percentage of recycled material required or exemption increases.
Similarly, as demand for recycled material increases, so does the price and there could come a tipping point where it becomes cheaper to pay the tax on virgin plastic than to buy non-taxable material. Another difficulty is that many food and drink products cannot be contained in recycled plastic.
Many businesses also remain uncertain as to whether they are able to pass on the new tax cost to customers. This depends on where the power lies in the commercial relationship. As a generalisation, suppliers are seeking to pass the tax cost onto their customers, but this will not always be possible.
Getting organised to reduce the burden
Larger businesses must act now in order to ensure that all relevant internal teams are directly engaged in assembling the correct data. Assembling a working group forces out actions required to ensure compliance and to manage both risk and this new cost. The PPT filing requirements are now live so this is a priority task.
Smaller businesses with less complex supply chains and customer bases also need to ensure that they have considered all of the potential angles for management of PPT. Often technical knowledge in small businesses is vested within key individuals (key directors or family individuals) with limited direct internal support available from small finance teams. We often see that these businesses have worked through the impact of the tax, its application and its financial impact on the business. Often however, they have overlooked the practical implications of its everyday management and the exact nature of the record keeping requirements at each stage of the transaction. These are real practical issues that could quite easily trip up a small business, for example one that exports, where it may not gather the correct evidence needed to claim the relief from charge.
The contractual position with suppliers and customers should also be addressed. This applies to both existing contracts to see what, if any, provision exists and to new contracts.
Given that the aim of the tax is to reduce the use of virgin plastic and to encourage recycling, business should also be considering whether they can switch to non-taxable packaging, whether plastic or not. In some cases, this may lead to R&D that qualifies for tax relief.
If you have any queries, please contact Claire McGuigan.