Businesses in scope

Backwards and forward look tests

Businesses must register for the Plastic Packaging Tax if they will manufacture or import 10 or more tonnes of finished plastic packaging components. If it is within the next 30 days, it is called the ‘forward look’ test. If it happened during the previous 12 months, this is called the ‘backwards look’ test. As the tax took effect on 1 April 2022, only packaging manufactured or imported on or after this date needs to be included.

From 1 April 2023, the 12-month timeframe for the ‘backwards look’ test will be a rolling one. However, if a business has met the conditions of the ‘backwards look’ test on any given date, it must register for the tax and complete quarterly returns for at least 12 months. A business that meets the ‘backwards look’ test on 1 April 2023 but does not do so on 2 April 2023 would have to register. If a business does not meet the liability conditions for a period of at least 12 months, they can request for their registration to be cancelled. There is information about this in the Finance Act 2021 Section 57.

Once a business meets the 10-tonne threshold using the ‘backwards look’ test, it has 30 days to register for the tax. It will be liable from the first day of the calendar month after the month in which the threshold was reached. So, if on 15 June 2022, a business has manufactured or imported 10 or more tonnes of plastic packaging components since 1 April 2022, it is liable for the tax on any components that it manufactures or imports on or after 1 July 2022. It is not liable for the tax on any components that it has manufactured or imported before 1 July 2022.

A business with reason to expect that it will manufacture or import 10 or more tonnes of plastic packaging within the next 30 days must register for the tax within those 30 days, as per the ‘forward look’ test. It must not wait to see if the threshold is ultimately reached.

HMRC has provided examples of how to apply the two tests. HMRC expects businesses to complete both tests regularly, but it has stated that businesses should look back on the first of each calendar month to complete the ‘backwards look’ test.

Must liable businesses pay Plastic Packaging Tax on all their tonnage that’s in scope?

Whether a business that is liable for the Plastic Packaging Tax must pay it on all their tonnage that’s in scope depends on which of the tests has been applied.

If the backwards look test is applied, the tax applies only to components manufactured or imported on or after the first of the month after the month in which the 10-tonne threshold was reached. However, if a business knows that it will manufacture or import 10 or more tonnes in the next 30 days and so applies the forward look test, the tax is due on all tonnage from the date when the business knew that it would reach the threshold.

Based on this, it appears that there could be circumstances in which it is advantageous for a business to apply the ‘backwards look’ test rather than the ‘forward look’ one.

Here is a scenario as an example:

A business has met the conditions of the backwards look test on 15 July 2022 and so it is liable for the tax on all components that it manufactures/imports from 1 August 2022. The same business knows on 15 July 2022 that it will manufacture or import 10 or more tonnes of plastic packaging within the next 30 days, meaning that the conditions of the forward look test have also been met. If the business applies the backwards look test, it will not be liable for the tax on any components that it manufactures or imports between 15 July and 31 July 2022. However, if the business applies the forward look test, it will be liable for the tax on any components that it manufactures or imports between 15 July and 31 July 2022.

However, the Finance Act 2021 Section 55(2) requires that the forward look test should always be used first. The forward look test takes prevalence over the backwards look test.

Businesses not in scope

Businesses only need to register for the tax if the 10-tonne threshold will be met (forward look test) or has been met (backwards look test).

However, the fact that a business must conduct both tests regularly and register if either is met means that any manufacturer or importer must monitor how much plastic packaging they’re manufacturing or importing into the UK. This is to demonstrate that they have not met the threshold of either test. Otherwise, they could breach the threshold and be non-compliant without realising this.