We all know the famous VAT case of when is a cake, a cake and when it is a biscuit, but today we go a step further, Forget Jaffa Cakes; let’s talk Poppadoms!
When is a poppadum a poppadum and when is it a crisp? At what point does a poppadom transform into a crisp?
In the recent case of Walkers Snack Foods Limited v HMRC [2024] TC09024, the First Tier Tribunal (FTT) determined that Walkers’ ‘Sensations Poppadoms’ should be subject to standard VAT rating.
This was because these Poppadoms, composed of potato and potato starch, were strikingly similar to traditional potato crisps.
In June 2021, HMRC made a decisive ruling that ‘Sensations Poppadoms,’ crafted by Walkers Snack Foods Limited, were to be standard-rated for VAT.
According to Note 5 of Group 1, Schedule 8 VATA 1994, standard VAT rating extends to “…potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch…”
Although both Walkers and HMRC agreed that the products didn’t fall under the category of ‘potato crisps, potato sticks, or potato puffs,’ HMRC contended that they were ‘similar products’ derived from ‘the potato, or from potato flour, or from potato starch.’
Walkers chose to challenge this decision by appealing to the First Tier Tribunal (FTT). The FTT, in its findings, noted:
1. The products contained a substantial amount of potato or potato starch, with both flavours incorporating 17.5-18% potato granules, 17.5-18% potato starch, and approximately 4.25% modified potato starch. Despite Note 5 not explicitly mentioning potato granules, they fell within the definition of ‘the potato.’
2. The proportion of potato content, totalled around 40% in the products, this was deemed significant compared to other ingredients.
3. A multifactorial assessment was crucial in determining the similarity to potato crisps. Factors included packaging, retail placement, marketing, and appearance. The products were packaged and sold akin to potato crisps, located alongside such snacks in retailers, and featured marketing emphasising flavours similar to that of potato crisps.
4. The products were sold in large ‘sharing’ bags, mirroring the packaging consistency seen in Walkers’ other products, notably potato crisps.
5. Appearance, taste, and texture were akin to potato crisps, with various flavours aligning with the diverse range found in traditional crisps.
6. Despite an argument that the inclusion of potato content was aimed at cost reduction, this was not sufficient to distinguish the products objectively from their similarity to potato crisps.
7. The overall assessment found no breach of fiscal neutrality, concluding that the products were within the scope of Note 5.
Kelly Eland, our VAT Partner commented “The decision is not unsurprising, nor is the fact that Walkers were prepared to challenge the liability. Similar to the Pringles decision some years ago, a win would have been worth a significant sum. There were a couple of things that I found particularly interesting about this case. The first was the approach taken by the tribunal in carrying out a ‘multifactorial’ assessment. This is what I would refer to a 360 approach. In this instance the tribunal considered the packaging, retail placement, marketing and appearance. In other words, they looked at all the external factors surrounding the product itself and how these would be perceived.
This theme runs through all supplies, not just food and beverages. How a supply is presented, both on the face of it and contractually, can impact the VAT liability so once a business has a product, whilst we would not encourage ‘letting the tail wag the dog’ it is important to consider how the product/supply is perceived across the board.
If your business is considering offering new products or services it is worth taking some advice to cement the “intended position” as this is always easier than defending a position at a later date or seeking to recharacterise what has probably already been determined.
The second point is connected to the first, in terms of how the product is marketed. Back in the late noughties, Pringles bought a case for zero rating its Pringle Dipper product. Here, the product was made with 38% potato flour (not dissimilar to the poppadum case). Pringles argued that the main difference between the two pringle products was that the new “dipper” was specifically designed for dipping and accordingly “has a scoop shape to be used for dipping the product into accompanying dips. That being the case, it required “further preparation” and took itself back into the zero rating provisions.
I wonder if Walkers could not have majored on the “required further preparation” point? Mango chutney anyone? Watch this space….”
So, in conclusion, a Poppadum (currently!) can in fact be called a crisp! Let us know what you think about this ruling, do you agree that a Poppadum is a crisp
If you would like to discuss anything contained in this article or indeed any area of VAT, contact us on 020 7870 9050 a member of our team is waiting to assist.
