Several times over the years, I have brought you tales of titanic courtroom struggles between HMRC and various ‘food ‘manufacturers. They all had the common theme of the manufacturer attempting to persuade HMRC and the court, that their product should be classed as a food and therefore zero-rated for VAT. As opposed to the tax office’s view that it shouldn’t! Who can forget the epic tale of the ‘Jaffa Cake’ or perhaps ‘Millionaire shortbread’, and my personal favourite ‘Marshmallow’ I want s’mores!
Today, I bring you news of the latest battle in the war between the makers and HMRC, with news that Walkers Crisps have entered the fray to take on the tax office. When you hear the name “Walkers” one of two things springs to mind: crisps or Gary Lineker. Both have been the subject of many a tax dispute, but if you’re looking for a tale of salty snacks, keep reading.
Poppadom or crisp?: Technical background information
Many of my readers will be relatively well versed in the VAT treatment of various foodstuffs. Nonetheless, I think that it would be a good idea to remind you of the legislation involved, relevant to this case.
I’ll start with the basic law on the subject, which is Schedule 8 of the 1994 VAT Act. The Schedule provides a list of goods and services that are zero-rated for VAT. The list includes “food of a kind used for human consumption”, and then helpfully provides a list of items specifically excluded and liable to 20% VAT.
Note 5 of to the exclusions list reads: “Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in the shell, are Standard Rated for VAT.”
Popadom or crisp?: The basics of the case
Note 5 and its interpretation was the subject of this first-tier tax tribunal (FTT) case, between Walkers and HMRC. Specifically, it concerned ‘Sensations Poppadoms’, which are available in two flavours: Lime and Coriander Chutney and Mango and Red Chilli Chutney.
HMRC sought to show that the Sensations Poppadoms had similar characteristics to crisps, hence fell within Note 5 and should be standard-rated and referenced a 2009 FTT case involving Pringles. In the 2009 case, which HMRC won, the FTT decision was based on various factors including how the product was marketed, appearance, flavour, texture, manufacturing process and ingredients.
Popadom or crisp?: What were Walker’s arguments?
- Further preparation needed: Walkers claimed that their ‘Poppadoms’ were designed to be eaten alongside a meal as a side dish, and should be eaten with dips, chutneys and pickles. This, they claimed, meant that their product required further preparation before consumption. The FTT judge quickly dismissed this argument pointing out that there was no mention on the packaging that further preparation was required before the product could be eaten.This turned out to be a spectacular own-goal for Walkers as their promotional material showed multiple images of people eating the their ‘Poppadoms’ directly from the bag.
- We did a survey: Walkers put forward evidence of a survey conducted by its owner PepsiCo, in which 58% of respondents answered “any poppadoms” to the question “What would you choose instead if this product was unavailable?” The presiding judge did not consider this very helpful as the questions provided were incomplete and lacked context.Own-goal No.2. HMRC had done a bit of research themselves and discovered that there was a follow-up question in the survey, to which 84% of respondents said that they would purchase some other form of potato crisp if the ‘poppadoms’ weren’t available.
- Fried snack neutrality: Walkers then argued that to deny the products a zero-rating would breach fiscal neutrality as other similar potato supplies, such as poppadoms, are zero-rated.Own-goal No.3. The FTT judge commented, “The use of the word poppadom, is something of a red herring as the title given to a foodstuff is not what determines its VAT rating – what matters, in this particular case, is whether it is similar to a potato crisp and is made from potato. “
The Tribunal’s conclusion
No prizes for guessing Walkers lost this case and to rub salt in their wounds, the FTT judge also denied leave to appeal to a higher court. He concluded the hearing by saying, “Having established that the ‘Poppadoms’ are made from the potato and potato starch, it is therefore irrelevant whether the products are similar to poppadoms. What matters is whether they are similar to potato crisps, which the product clearly is and they therefore standard-rated. “
Tax Accountant’s view
I really enjoyed writing this Blog and my thanks go to Tax writer Amy Chin, who brought this case to my attention. I just hope that Walkers get a refund from their expensive lawyers as this was a case that should never have been brought to court.