Executive Summary

The UK’s Plastic Packaging Tax (PPT) will change in May 2025 to include chemically recycled plastic in the recycled content calculation. This is a big shift that can help businesses meet EPR compliance requirements and lower their tax bills. Companies that produce, import, or distribute plastic packaging should start preparing now to make sure their VAT reporting and systems stay compliant with the new rules.

What Is the UK’s Plastic Packaging Tax and Who Does It Apply To?

The UK’s Plastic Packaging Tax started in April 2022. It applies to any plastic packaging made in or brought into the UK that contains less than 30% recycled plastic. The current tax rate is £217.85 per tonne, which can be very expensive for businesses that don’t meet the rules.
The goal of the tax is to encourage companies to use more recycled plastic and reduce harm to the environment. According to HMRC, this tax brought in about £276 million in 2023/24, showing how important it is — and how businesses can cut costs by following EPR regulations.

The Chemical Recycling Update: What’s Changing

One of the biggest updates to the tax, confirmed by HM Treasury, is that chemically recycled plastic will count toward the recycled content calculation starting in May 2025. This means there will be two ways businesses can meet the 30% recycled content rule:

• Mechanical recycling: This is already accepted. It includes sorting, cleaning, and turning plastic waste into new materials.
• Chemical recycling: Starting May 2025, this method will also be accepted. It breaks down plastic into its basic chemical parts, which are then used to make new plastic.

This change gives businesses more options to meet EPR compliance goals — especially those using specialized packaging or dealing with strict food labeling compliance rules where mechanical recycling doesn’t always work.

Financial Implications for UK Businesses

The British Retail Consortium estimates that the Plastic Packaging Tax, along with other packaging-related regulatory costs, could add around £2 billion in expenses for UK retailers. But there’s good news: the recognition of chemically recycled plastic could help businesses lower costs in several ways:

• Businesses currently paying PPT because they can’t use mechanically recycled plastic may now reach EPR compliance using chemical recycling.
• More chemical recycling facilities will allow greater supply chain diversification and flexibility.
• Companies can innovate in packaging design by using chemically recycled materials that also support EPR and food labeling compliance.

Example: A mid-size manufacturer using 5,000 tonnes of plastic packaging with only 20% recycled content pays about £436,000 in tax each year. If they switch to chemically recycled plastic and meet the 30% content requirement, they could eliminate that cost entirely.

What’s new for VAT and EPR reporting?

The inclusion of chemically recycled plastic has direct implications for VAT and EPR reporting:

• Evidence Requirements: HMRC will establish specific documentation standards for verifying chemically recycled content, which businesses must incorporate into their record-keeping systems.
• System Updates: Finance departments will need to modify their EPR system and VAT reporting infrastructure to accurately track and document different types of recycled content.
• Supply Chain Verification: Companies must implement robust supplier verification processes to ensure claimed chemical recycling credentials meet HMRC standards.
• Quarterly Reporting Adjustments: VAT returns will need to reflect the updated PPT calculations based on new recycled content definitions.

Action Plan: Ensuring Compliance with Plastic Packaging Regulations (May 2025)

As of May 2025, businesses must comply with updated plastic packaging regulations (e.g., UK Plastic Packaging Tax requirements). With the deadline now in effect, the focus shifts to maintaining compliance and optimizing processes. A comprehensive strategy includes:

Ongoing Actions (Q2–Q3 2025)

• Regularly audit plastic packaging materials to ensure recycled content meets regulatory thresholds (e.g., 30% recycled content).
• Maintain close collaboration with suppliers to verify chemical recycling capabilities and secure consistent supply chains.
• Work with tax specialists to monitor financial impacts and optimize tax liabilities under current recycling scenarios.

Continuous Improvement (Q3–Q4 2025)

• Refine procurement policies to prioritize suppliers consistently delivering chemically recycled content.
• Enhance documentation systems to ensure HMRC-compliant records of recycled content percentages are accurate and audit-ready.
• Monitor and update systems to track chemical recycling content, ensuring seamless integration with VAT reporting processes.

Expert Perspective

According to Sarah Johnson, Head of Sustainability Compliance at the Environmental Packaging Association: “The inclusion of chemical recycling within the PPT framework represents a significant opportunity for businesses struggling to incorporate recycled content using traditional mechanical methods. However, companies must be vigilant about the verification standards, which are likely to be rigorous to prevent greenwashing or false claims.”

Conclusion

The May 2025 changes to the UK’s Plastic Packaging Tax create both opportunities and EPR compliance challenges for businesses throughout the supply chain. By taking a proactive approach to understanding and preparing for these changes, companies can potentially reduce their tax liability while contributing to the circular economy for packaging.

For personalized guidance on optimizing your PPT compliance strategy and ensuring accurate VAT and EPR registration under the new framework, contact our tax specialists at Lovat Compliance.