Understanding the UK Plastic Packaging Tax: Key changes and future implications

Since April 2022, His Majesty’s Revenue & Customs (HMRC) has imposed a tax on plastic packaging manufactured or imported into the UK containing less than 30% recycled content.

During the recent Budget, it was announced this levy will continue to rise in line with CPI inflation, reaching a rate of £223.69 per tonne from April 2025. In addition, a pivotal update was announced: HMRC will allow mass balance accounting for chemically recycled plastic. But what does this mean, and how will it affect the future of plastic packaging taxation?

Background: The origin of the Plastic Packaging Tax

The plastic packaging tax originated from the Resources & Waste Strategy for England, published in late 2018, as part of Defra’s Collection & Packaging Reforms. Aimed at incentivising the use of recycled plastics in packaging, the tax has since arguably contributed to an increase in recycled plastic usage. However, it quickly became apparent that certain aspects of the tax’s design might be impeding the long-term development of certain plastic recycling infrastructure in the UK.

The problem: Issues with chemical recycling and the 30% recycled content threshold

While the tax does, in theory, allow recycled plastic from chemical (or advanced) recycling facilities to count towards the 30% recycled content threshold, in practice, it has proven challenging. Unlike traditional recycling, chemical recycling facilities require virgin plastic to be feed into them to ensure the waste plastic put in can re-polymerise into reusable plastic. This results in the outputs of chemical recycling facilities not being 100% recycled.

Since April 2022, HMRC has accepted “material input” calculations to estimate the amount of recycled content in plastic packaging where inputs include both recycled and virgin plastic, but this calculation wasn’t extended to chemical recycling processes. As a result, chemically recycled plastic has been unable to qualify as recycled content under the tax, preventing businesses from using it to meet the 30% threshold. For those with more specialised knowledge of this area, please forgive my attempts at oversimplification – more detailed information can be found  here.

What’s been announced: Updates on mass balance accounting for chemical recycling

In response to industry feedback to last year’s consultation, HMRC announced it will allow mass balance accounting for chemically recycled plastic under the Plastic Packaging Tax. This new approach means manufacturers can account for chemically recycled content based on input estimates.

Key points of the mass balance approach to be allowed include:

• A three-month balancing period will apply at the site level, with limited allowances for transferring credits between sites
• Sites cannot carry a negative balance
• HMRC has chosen the fuel-exempt allocation method over proportional or polymer-only methods, aiming to foster UK recycling infrastructure while maintaining tax integrity

Additionally, HMRC plans to discontinue the allowance of certain pre-consumer plastic waste as recycled content for tax purposes, a change expected to increase the tax burden on manufacturers, particularly those sourcing plastic packaging domestically.

What’s next for the UK Plastic Packaging Tax?

The decision to adopt mass balance accounting for chemical recycling reflects HMRC’s intent to align the UK’s recycled content measurement methods with those being adopted across other European countries.

However, discontinuing the use of pre-consumer waste as recycled content may increase immediate tax liabilities for manufacturers, potentially affecting the cost of UK-sourced plastic packaging.

Looking forward:

At Valpak, we believe these announcements represent a positive evolution in the Plastic Packaging Tax. We advocate for:

• Enhanced documentation and reporting rules for recycled content
• Ringfencing tax revenues to fund recycling infrastructure
• A more pragmatic approach to regulatory compliance that supports the environmental goals originally envisioned for the tax

These steps would further reinforce the tax’s effectiveness in supporting a circular economy, plus the development of robust, sustainable plastic recycling infrastructure in the UK.

Valpak support

For businesses impacted by the Plastic Packaging Tax, Valpak offers expert guidance through its dedicated Plastic Packaging Tax service. The expert team can help you navigate the complexities of compliance, implement mass balance accounting, and manage changes affecting recycled content requirements. Through tailored support, Valpak can help your business to not only stay compliant but also drive sustainable packaging through Packaging Analysis solutions.

Get in touch to learn how Valpak can support your compliance and help you explore sustainable packaging options.