Environmental indirect tax update: What’s next for PPT, DRS and EPR?

Plastic Packaging Tax (PPT) 

When Plastic Packaging Tax was introduced in 2022, it was clear that it would evolve over time. Several years on, the government’s approach appears to be clearer. Rather than significant reform, policy focus appears to have shifted toward refining the tax and making it more effective.   

Rate and recycled content changes 

The PPT rate has increased to £228.82 per tonne from 1 April 2026, in line with CPI inflation. This follows the approach so far, of incremental rate increases and suggests that the government continues to see PPT primarily as a behavioural tool rather than a revenue‑raising measure. 

Notably, the government has announced that pre‑consumer waste (for example, plastic waste created as a by-product of a manufacturing process) will be removed from the definition of ‘recycled plastic’. This widens the scope of plastic packaging liable to the tax and puts more focus on increasing the use of post-consumer packaging (waste packaging generated by households, businesses and public entities) as an input in the manufacture of new packaging. Pre-consumer material isn't banned from packaging outright, it can still be used, but from 1 April 2027 it will no longer count towards the 30% recycled content threshold for PPT relief, and the change applies to components manufactured in, or imported into, the UK from that date. Businesses holding stock they're currently relying on to support recycled content claims should look to use it before the rules change. 

The government also confirmed it will allow a mass balance approach for chemically recycled plastic from 1 April 2027, which should improve access to PPT relief for businesses using chemically recycled plastic. See our previous article where we considered this change in detail here ESG and tax: what next for the Plastic Packaging Tax?. Both changes take effect from 1 April 2027, and from that date recycled content claims will also need to be restricted to genuinely post-consumer waste. It's worth pointing out that mass balance accounting is a chemical recycling route only. HMRC has confirmed it cannot be used to account for mechanically recycled plastic under any circumstances, and businesses relying on mechanically recycled content must continue to evidence its source under existing guidance. For chemical recycling, HMRC has just published new guidance on Preparing to use a mass balance approach for chemical recycling and the minimum certification requirements, with further details on the penalty regime for non-compliance expected in early 2027. 

Consultation on certifying recycled content 

HMRC has concluded its consultation on certification for mechanically recycled plastic mentioned in the Autumn Budget 2025. It asked whether businesses claiming the 30% recycled content exemption should be required to hold independent, third-party certification for mechanically recycled plastic, mirroring the certification already confirmed for chemically recycled plastic under the mass balance approach. It sought views on the prevalence of fraudulent or inaccurate recycled content claims, the practical impact on affected businesses, and potential timings for implementation. 

Two chain-of-custody models were on the table:  

• Segregated: recycled material is kept physically separate from virgin plastic at every stage. Easier to evidence, harder to operate at scale.
• Controlled blending: recycled and virgin material can be mixed, provided volumes are tracked through strict input-output accounting. More practical for high-volume manufacturers, but demanding on systems  

For businesses relying on the recycled content exemption, this is significant. If mandatory certification goes ahead, a self-declaration will no longer be enough and businesses will need audited, accredited evidence of where their recycled plastic actually came from.  

Deposit Return Scheme (DRS) 

At Autumn Budget 2025, the government confirmed it will simplify VAT administration for the Deposit Return Scheme (DRS) by transferring responsibility for accounting for VAT on unreturned deposits from individual producers to the Deposit Management Organisation (DMO), rather than the manufacturers or importers who make the first supply.  

When previous governments looked to roll out the scheme, producers, distributors and retailers were concerned about the systems and process changes they would need to make to account for VAT on unreturned deposits, since these count as consideration for a taxable supply. Moving this responsibility to the DMO relieves individual producers of it, but left open a key question: would others in the supply chain, such as distributors and retailers, still need to account for anything?   

Detail confirmed in July 2026 

HMRC has since gone further. A policy paper published on 13 July 2026 confirms that primary legislation will be introduced in Finance Bill 2026-27 so that the scheme administrator for each of the three national schemes – covering England and Northern Ireland, Scotland, and Wales – accounts for VAT on unredeemed deposits, rather than any business in the supply chain. This answers the question left open at Autumn Budget 2025: none of the producers, distributors or retailers involved will need to account for VAT on the deposit element of the price at any stage. Detailed accounting regulations will follow in a statutory instrument once the Finance Bill receives Royal Assent, with the new rules taking effect when the schemes go live. 

That launch date remains 1 October 2027 across all three nations. Exchange for Change has been appointed scheme administrator for England, Northern Ireland and Scotland, and the Senedd has approved the equivalent Welsh regulations. A single flat 20p deposit has also been recommended across the UK, with reverse vending machine specifications being finalised over the summer. So the operational shape of the scheme, as well as its VAT treatment, is now much clearer than it was a year ago. 

Extended Producer Responsibility (EPR) 

Extended Producer Responsibility (EPR) is an environmental scheme that requires packaging producers to cover the cost of managing household packaging waste, including the costs of collecting, sorting, recycling and disposing of packaging once it is discarded by consumers. Managed by the Department for Environment, Food and Rural Affairs (Defra), the new EPR regime began in 2025, which required producers to cover the full cost rather than just a proportion of these costs.  

Unlike PPT and DRS, EPR for packaging isn't a tax set at a Budget – it's a producer fee administered by PackUK, a body within Defra, under The Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations 2024. For businesses tracking their overall environmental indirect tax exposure, though, it belongs firmly in the same conversation: EPR fees are now a significant, and growing, cost of putting packaging on the UK market. 

Fees become modulated in year two 

Year one (2025 to 2026) charged flat base fees per tonne, regardless of how recyclable the packaging was – for example, £423 per tonne for plastic. From year two (2026 to 2027), fees are modulated for the first time using the Recyclability Assessment Methodology (RAM), which rates packaging red, amber or green:  

• amber acts as the base fee;
• red-rated packaging – including anything with missing or incomplete data – attracts a fee around 20% higher than the base fee; and
• green-rated packaging benefits from an estimated 9% discount on the base fee.  

PackUK's illustrative Year 2 fees, published in December 2025, show the amber rate for plastic rising to around £455 per tonne, with some materials – wood in particular – up by considerably more. 

Confirmed fees still to come

These figures are illustrative only. PackUK's operational plan for year two (2026 to 2027) confirms it's aiming to recover around £1.56 billion from producers this year, but the final per-tonne fees won't be set until all 2025 packaging data has been submitted and validated. Producers have until 1 September 2026 to resubmit data, after which PackUK intends to lock in the figures and issue Notices of Liability, so confirmed fees are yet to be announced. 

One point worth flagging for drinks producers: containers in scope of the DRS are exempt from EPR fees, to avoid double-charging, but may still need reporting. Getting that split right in your packaging data will matter increasingly as both schemes mature. 

What this means for businesses

This isn't a watch-and-wait situation - PPT, DRS and EPR all demand action now, not later. 

For more information or guidance, please contact Daniel Rice, Marcus Feld or Rebecca Thatcher.