The government’s under-fire packaging tax has allowed an army of opportunistic companies to exploit loopholes in the funding model to avoid paying the fees, a shock investigation has revealed.
A probe of Companies House information, seen by The Grocer, shows the first EPR bills landing last year coincided with a massive spike in the registering of small packaging firms, many of them one-man bands. It is claimed they are being used as a vehicle for food companies to bypass the ‘producer pays’ packaging principle.
Furious packaging leaders claim bona fide companies who had been shouldering the full costs of the tax are seeing their business snatched away by the new cohort falling under the radar of Defra’s management body PackUK.
The incredible revelation comes less than 48 hours after it emerged the UK government had agreed to an extraordinary bailout to fund a shortfall in the first-year income from the EPR tax because its returns had raised less money than had been budgeted for.
Under EPR rules, the so called de minimis threshold exempts small producers with an annual turnover of £1m or less, and who handle 25 tonnes or less of packaging annually, from paying fees and reporting data.
The FPA claims this has been ruthlessly exploited, with the data showing a “sharp step-change” in the second half of 2025 of the formation of micro-entities across packaging sectors.
While figures for the companies being registered in wholesale and distribution, including foodservice packaging, remained flat for three years from the baseline of 2022/23, they exploded in October last year when the first invoices were sent out.
Whereas between October 2024 and September 2025 just 205 foodservice packaging firms were registered, in the four months to January 2026 alone the number was 132.
But when taking into account the wider incorporations within manufacturer, wholesaler and distributor categories, the figures was even higher, with 2,705 companies registering in the almost four month period, a staggering 169% increase when compared baseline in 2022/23.
Additional analysis of the figures shows many of the new businesses forming in packaging-related parts of the market are very small, newly created companies, typically run and controlled by just one person.
“If you design a system with thresholds, the market will organise itself around those thresholds and that is what our investigation is showing,” Foodservice Packaging Association (FPA) executive chairman Mike Revell told The Grocer.
While the FPA was not specifically alleging wrongdoing by individual businesses, Revell said EPR was “creating perverse incentives and penalising those who comply”.
“Companies that follow the rules should not be financially disadvantaged for doing so.
“If some obligated producers are not paying into the system, the cost burden concentrates on those that are visible and compliant which creates unfair competition.
“The EPR system should reward compliance – not penalise it.”
Meanwhile, Revell claimed a raft of companies are facing making major redundancies or even closing their business because of the impact of losing revenue.
“This is like a timebomb ready to go off and when we have serious job losses right across the packaging industry it too late, the damage will be done,” said Revell.
Today the FPA wrote to Defra, PackUK and the Environment Agency calling for an investigation and new measures including a review of the de minimis rules.
It is also calling for a complete overhaul of the enforcement and registering process of EPR.
”We hold information that has been provided to us by members in confidence,” added Revell.
“We are willing to share that information with Defra, PackUK and the relevant regulators, but only within a clear framework that ensures it will be properly assessed and followed up.
“Past experience suggests that intelligence can be acknowledged but not acted upon. That undermines confidence in the system. We are seeking assurance that information supplied in good faith will result in proportionate investigation and enforcement where appropriate.
“We need clarity on how intelligence is assessed, what thresholds trigger investigation, and how outcomes are communicated. Otherwise, confidence in the scheme will continue to decline.
“We are already seeing growing frustration among compliant businesses. Some are seeking legal advice and others are openly questioning whether continued participation is commercially sustainable if enforcement gaps persist.”
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