Plastic Packaging Tax on Imports: HMRC Enforcement

Gareth Davies Excerpts

Tuesday 17th October 2023 Westminster Hall

[The Exchequer Secretary to the Treasury (Gareth Davies)]

It is a great pleasure to see you in the Chair, Mr Davies.

Let me congratulate my hon. Friend the Member for Amber Valley (Nigel Mills) on securing this debate on the plastic packaging tax. This world-leading environmental tax is designed to incentivise businesses to use more recycled plastic packaging in their production. As has been said, the manufacturers and importers of plastic packaging that does not contain at least 30% recycled plastic are liable for a new tax.

The plastic packaging tax is one of a series of measures to drive more collection and recycling of plastic waste, helping us to reach our ambitious target to eliminate all avoidable plastic waste by 2042. However, I recognise that some people make false claims about recycled content in packaging and do not pay the taxes they owe, and they not only undermine important environmental objectives, but create an unfair and uneven playing field for businesses that are trying to do the right thing. That was why we consulted extensively to get all aspects of the tax design right, including taxpayer obligations and the evidence required to back up claims of recycled content. It is also why, since the plastic packaging tax was introduced in April last year, HMRC has been actively helping businesses to understand their obligations, and developing a comprehensive enforcement and compliance response to identify and tackle any non-compliance.

As I have mentioned, the tax applies to plastic packaging that is either manufactured in or imported into the United Kingdom, including plastic packaging that is already filled at the time of importation. Following extensive consultation, the tax includes a de minimis threshold of 10 tonnes of packaging per year, which is intended to avoid placing a disproportionate administrative burden on businesses that would outweigh the environmental benefits. This means that many small importations of plastic packaging will be out of scope of the tax.

I want to address some points about evidence requirements. In designing the tax, it was important that we struck the right balance to ensure that claims were credible, while avoiding placing a disproportionate burden on businesses. Essentially, the challenge is that there is no scientific test to determine the recycled plastic content of packaging. For that reason, businesses are legally required to hold a body of evidence that shows the origin and content of recycled material, the details of manufacture or import of the individual plastic packaging components, and the proportion of recycled plastic in the outputs from the recycling process. As there is no one-size-fits-all approach, the type of evidence required is not prescribed—there is not one certificate. There can be a range of evidence, such as contracts, certificates and purchase orders.

Let me directly address some of the specific comments made by my hon. Friend the Member for Rugby (Mark Pawsey), who spoke about importers, as did the shadow Minister, the hon. Member for Ealing North (James Murray). We recognise that importers are a higher risk and must demonstrate the same standard of record keeping as UK manufacturers. Where businesses do not have or hold sufficient evidence for us to inspect, they must not declare that their packaging contains at least 30% recycled plastic, and they must pay PPT.

In addition, HMRC has a range of enforcement and inspection powers at its disposal, as well as sanctions and penalties, but the Government have also gone further by improving the legislative environment to introduce criminal offences for businesses that evade PPT. In a minute, I will come on to what action HMRC has already taken in that area, because several colleagues have asked for that information.

[Mark Pawsey]

The Minister has acknowledged that, for reasons of safety, food contact applications cannot, by their very nature, include recycled material. I wonder whether he would accept that the plastic packaging tax should automatically apply to any imports of material used where food contact is involved.

[Gareth Davies]

To be clear, the presumption is that businesses need to demonstrate that they meet the threshold to have relief from the tax. If they cannot do that, they must pay the tax. That is clear, and I hope that that answers my hon. Friend’s question.

Businesses are also required to carry out due diligence on their supply chains and to demonstrate to HMRC what checks have been carried out in their supply chains. HMRC can and will challenge claims from businesses, and is doing so, and anyone in the supply chain can be held liable. When assessing that liability, HMRC will consider due diligence checks undertaken to ensure that the supply chain has taken appropriate steps.

My hon. Friends the Members for Rugby and for Amber Valley both talked about false and fraudulent claims. We are alive to that issue, particularly as it relates, as they pointed out, to the content of recycled plastic. We understand that that is a serious impact for businesses that are just trying to do the right thing, as I said at the beginning.

To embed the tax, HMRC delivered a wide-ranging communications programme that targeted both domestic manufacturers and importers of packaging. It focused on making them aware of the requirements and supporting them to comply with those. Recognising that some businesses may need more time to fully understand their obligations under the new tax, HMRC went even further and allowed a 12-month soft landing period, during which the focus was on education and support for businesses.

Now that that period has ended, businesses must ensure that they have gathered appropriate evidence, filed their returns and paid on time. Although HMRC continues to support businesses, it is now also focusing its efforts and targeting its resources on the areas of highest risk and non-compliance. The tax has been in place for 18 months, so HMRC now holds more data from tax returns to inform risk profiling and emerging trends. Its data-driven approach will help to identify and target instances of error and non-compliance. I will come on to what action has been taken in a second.

As with general taxation, HMRC’s compliance activity for PPT draws on a test and learn approach. That moves through various phases, and approaches can change depending on what HMRC learns along the way. Largely, it has concentrated on targeting unregistered businesses that may have a liability and on developing a better understanding of the plastic packaging tax population, particularly given the tax is so new, to build a risk compliance approach.

I want to address the question of registration. To reiterate, over 4,000 businesses have registered for the tax in 2022-23. We concede that that is lower than the initial estimate of 20,000, but that estimate was made before the final policy decisions on the tax were made. We were very clear that the estimate was always subject to a lot of uncertainty. HMRC continues to engage with businesses and hold them to account. I am pleased to say that, since the tax was launched, 250 additional businesses have now registered with HMRC.

Businesses found to be negligent or cheating the system will incur penalties in addition to the tax due and can face liabilities of up to 100% of the tax due. They can also face legal action to recover the tax; in the most serious cases, as I have said, criminal prosecution may take place. My hon. Friend the Member for Amber Valley asked for statistics on this. I can tell him that so far HMRC has contacted 2,000 businesses proactively and conducted 400 interventions on compliance since the tax went live. So far, £3 million has been recovered as a result of that action. I point out that HMRC will always be open to receiving any information or evidence where businesses or individuals feel that compliance is not in order.

[Nigel Mills]

I do not know whether the Minister knows this, but was the enforcement action against the importer or against somebody further up the supply chain?

[Gareth Davies]

I had anticipated the question, but was unable to obtain the information in time. If we have that information, I will be happy to follow up and write to my hon. Friend on the breakdown, because he is focused on importers and it is a reasonable question.

I will finally address the point on mass balance and chemical recycling. I should point out that we have launched a consultation on this matter. We are looking at it carefully and will respond to that soon, so watch this space on that point.

As in other areas of tax fraud, the Government are committed to taking strong action across the tax system to address any activity that is unfair and that undermines businesses that are doing the right thing. The plastic packaging tax revenues in the first year, as has already been said, were £276 million, which is broadly in line with the Office for Budget Responsibility’s forecasts. That indicates that the amount of plastic packaging subject to the tax is in line with expectations. However, as hon. Members will have heard, work to ensure that all obligated businesses are registered and compliant with the tax continues to this day. If a business or individual has specific concerns or, I reiterate, intelligence about tax non-compliance, I encourage them to report it to HMRC through the normal channels, so that we can ensure a level playing field for everyone. Everybody in this Chamber has expressed a desire to achieve that.