How to manage asset inventory for the new plastic packaging tax

On 1 April 2022, the UK’s new plastic packaging tax (PPT) came into effect. Designed to discourage the use of new plastics and encourage the use of recycled plastic, the tax is currently set at £200 per tonne of plastic packaging brought into the UK market.

Packaging that contains at least 30% recycled plastic is exempt, but must be accounted for. While it will doubtless encourage businesses to meet or exceed environmental regulatory compliance demands, the new tax requires all companies to have a 24/7/365 overview of their assets. In this post, we explain how you can more easily manage asset inventory and link your asset management with other systems for plastic packaging tax compliance.

According to the UK government’s web pages, the new PPT will affect around 20,000 importers and manufacturers of plastic packaging in the UK. Companies that import or make plastic packaging but deal with less than 10 tonnes of it each year don’t have to pay, but as soon as a business is handling more than 10 tonnes of plastic packaging, it must register with HMRC and pay PPT each quarter.

The government’s web pages on PPT contain a wealth of detailed information on who does (and does not) have to pay PPT, the exemptions available and the accountability required. You can reach those pages by clicking here. In summary, the tax applies to packaging items on a per component basis, and is paid by the last company to modify the component before it is filled with the relevant product. There’s a handy decision tree on page 2 of HMRC’s document Check If Your Plastic Packaging Is In or Out of Scope of the Plastic Packaging Tax, that can quickly give you an idea of whether you may be liable.

Packaging that is made from 30% (or more) recycled plastic is not taxable, but even those companies must keep relevant records and be able to prove the composition of their products – if they do not, they may not get the exemption and will have to pay PPT in full. You can learn more about the accounts and records that are required for PPT by clicking here.

How to ensure plastic packaging tax compliance

The government acknowledges that affected businesses will have to make specific efforts, and investments of time, effort and resource, to comply with the tax, stating that ‘Continuing costs could include … keeping appropriate records (including those required to claim the export credit) … In addition, joint and several liability requirements mean that 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.’ 

In other words, the tax not only requires firms to know precisely what is in their packaging and the point at which it entered or left the UK market, they are also to some extent accountable for the businesses they work with. If a business elsewhere in your supply chain messes up with regard to PPT, and HMRC decide that you could or should have known about it, you may find yourself paying at least part of the PPT bill. 

Consequently, companies affected by the new tax absolutely must have constant, real time visibility of their supply chain and their own inventory. Examples of what they need to know (and must be able to show HMRC) include:

• What each relevant item is made of – what percentage of it is plastic and of that, what percentage is recycled plastic?
• Where each item is and for how long
  
• Where each item is going (credits/exemptions may apply to exported goods), where it went and when
  
• Details of relevant items from earlier in the supply chain: who supplied the product, can they verify the plastic content, does the invoice state that the supplier has/has not paid PPT? 

In other words, companies affected by the PPT must have a detailed, real-time overview of their inventory, one that tracks assets both within their own premises and at least a few steps either side of them in the supply chain. But crucially, they must link this with their accounting and wider management processes; because if they don’t, PPT will generate a large volume of documentation and record collation that will eat up time and resources –  time and resources that could have been spent on profitable activity. 

How to manage asset inventory for environmental regulatory compliance

The plastic packaging tax is not merely a tax; it has been designed to operate as a form of environmental regulation, and affected businesses must develop systems and processes that document their environmental regulatory compliance. Those organisations must now gather, verify and store data about their products, their composition and associated pricing, contract and supply chain information. Furthermore, these data must be fed into the accounting process in order to pay or show exemption from the PPT.

Clearly, this calls for a digital asset management and inventory control system; the thought of covering all the requirements of PPT manually does not bear thinking about! It would  involve the deployment of resources on a scale that may well affect productivity, and run a substantial risk of (potentially costly) error. 

However, that inventory management system must go beyond the usual tracking, describing and locating capabilities (although these remain important); it must even go beyond the ability of inventory and asset management software to streamline processes and optimise operations.

Plastic packaging tax inventory software

A PPT-compliant asset management package must plug into the organisation’s wider systems in order to meet its tax and tax documentation liabilities. For example, inventory information (product composition, location, date of import/export) and financial/contractual information are all required to cover PPT. 

Fortunately, there are asset and inventory management tools that can do this. TagworX, for example, is asset management software that works hard for your organisation in terms of optimising traceability, processes and documentation, but also plugs into your other management software (including ERP and accounting) to ‘share’ your data across applications in the most efficient way. 

That way, not only do you know where your items are and who has responsibility for them at any given time, you can also document that line of liability to HMRC (which, bearing in mind the joint and several liability nature of PPT, may prove important). With TagworX, especially when aligned with accounting software, you can generate supply chain and financial/contractual insights for both tax and environmental regulatory compliance requirements. 

Nobody wants to fall foul of HMRC, and everybody wants their business to work in as streamlined and efficient a way as possible. If you are interested in using asset and inventory management and plastic packaging tax inventory software to help your business, please get in touch with us today.