How the Plastic Packaging Tax is affecting innovative small businesses

The Plastic Packaging Tax (PPT) was introduced on 1 April 2022 by the previous government. Although it's nudged more recycled content into packaging, it also taxes plastic-free, compostable products, which hits small eco-friendly innovators.

Here's a review of what changed, why it matters and three fixes the government could make to help – not hinder – small businesses.

A founder's view, in one sentence

"We pay tax for not putting plastics in our products, but companies that do put plastics in theirs don't pay the tax."

Charlie Richardson, founder of The Pure Option

Hear Charlie discuss this and more on The 99% Club, Enterprise Nation's podcast led by CEO Aaron Asadi.

What the tax is

Under the PPT rules, compostable and biodegradable polymers made from plants are treated as plastic. That means a product with 0% recycled plastic is liable if the regulations say it's predominantly plastic by weight.

• Who pays: Packaging that's mainly plastic by weight and has less than 30% recycled content falls in scope. There's a 10-tonne per year threshold for registration and quarterly returns.

• Current rate: £223.69 per tonne from 1 April 2025.

• Compostables count as plastic: Bio-based, biodegradable and compostable polymers made from natural substances like plant starch, for example, do not get a carve-out under PPT.

The impact of the tax

• Behaviour shifted: In 2023/2024, 42% of declared plastic packaging tonnage was taxable. The rest was relieved or exempt, most often because it met the 30% recycled content test.

• Receipts fell as firms adapted: £285 million in 2022/2023 fell to £268 million in 2023/2024 as more packs qualified for relief or met the threshold.

• Who registered: 4,669 businesses had registered by 24 July 2024.

• Design changes: Brands have shifted to light-weight packs and re-engineered formats. For example, Sainsbury's vacuum-packed beef mince uses 55% less plastic, saving about 450 tonnes of plastic every year.

• System outcome: The UK plastic packaging recycling rate reached 52.5% in 2023, a record.

Why small compostable firms get hit

• Perverse incentive: A compostable, plant-based pack has 0% recycled plastic by design, so it can be taxed. At the same time, a conventional plastic pack with 30% recycled content is not. The rule is explicit in HMRC guidance.

• Admin load: Small firms must keep detailed records for six years and perform supplier due diligence, which is heavy relative to their scale.

Ministers originally avoided a compostables carve-out to prevent loopholes and keep the incentive focused on recycled content, but the result today is a penalty on plastic-free design for small innovators.

Case study, The Pure Option

Charlie Richardson, founder of The Pure Option, explained the perverse incentive created by PPT for plastic-free packaging in Enterprise Nation's small business podcast The 99% Club.

"The government taxes us for not putting plastics in our products. So, we pay tax for not putting plastics in our products. But companies that have got [recycled] plastics in their products don't pay the tax. And that has had a devastating effect on our business.

"The government's argument is we could get round this tax if we put 30% recycled plastics in our products, but we obviously will never do that."

Charlie's experience maps directly onto the rulebook: compostables do not get special treatment, so a plastic-free item can be taxed while a conventional pack with 30% recycled content is not.

For small firms, the cost lands on thin margins and the record-keeping burden is heavy relative to scale.

Three things the government can do now, without losing the gains

1. Relief for certified compostables: Create a narrow, standards-based relief or a reduced "green rate" for independently certified compostable packaging, with anti-avoidance rules. This would remove the incentive to add plastic simply to pass 30%, while keeping pressure on virgin plastics.

2. A threshold that fits real small firms: Raise the 10-tonne limit, or add a taper just above it so micro firms aren't hit with full costs the moment they tip over. This would reduce disproportionate administrative and cash costs while firms scale, consistent with the policy's original small-business intent.

3. Cut friction in the system: Publish standard supplier declaration templates, a simple returns tool and allow data to be reused across PPT and EPR to avoid duplicate reporting. This would lead to higher compliance at lower cost for both business and government.

What Enterprise Nation members should do now

• If you use plastic packaging, plan how you'll reach 30% recycled content and gather supplier evidence now.

• If you make compostables, map where PPT applies, document your design rationale and avoid tweaks that would undermine your claims just to dodge tax.

• Tell us your experience, so we can feed real-world evidence into ministerial meetings this autumn.