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A very interesting case today. The world’s biggest crisps brand is now facing a deadline following a verdict that they will now have to pay VAT on it’s mini poppadoms because they are more akin to crisps, rather than what they say they are. There is more specifics by law on products being sold than it may seem! Walkers contended that the Sensations Poppadoms bags should be exempt from the sales tax since they are not crisps (which are included in a specific category of snack items that are liable to the tax, along with cereal bars, ice cream, and chocolate-covered biscuits). The judge disagreed.
Foods on that list are subject to 20% VAT under the complicated tax regulations. Because traditional poppadoms are considered restaurant cuisine or food that needs to be prepared further rather than a packaged snack, they receive a zero rating. Previous VAT debates have involved McVitie’s Jaffa Cakes, which tax authorities in the 1990s unsuccessfully argued were biscuits; Pringles, a win for HM Revenue and Customs when they were found to be a crisp; and flapjacks, which were found to be too chewy to be a cake and therefore subject to VAT.
Walkers said that their little poppadoms, which were meant to be eaten with curries or for dipping in sauces, shouldn’t be categorised as crisps because they weren’t made of potatoes and needed to be prepared beforehand. In spite of this, a tax tribunal determined that the “small, generally round, bite-sized objects” were in fact crisps because 40% of the ingredients, including potato starch and granules, were “potato-derived.” The objects were also described as “somewhat wavy, with small bubbles on the surface.”
“Nominative determinism is not a characteristic of snack foods: calling a snack food Hula Hoops does not mean that one could twirl that product around one’s midriff, nor is Monster Munch generally reserved as a food for monsters,” stated the tribunal judges, Anne Fairpo and Sonia Gable.
The idea that Sensations Poppadoms were employed similarly to their larger brethren did not convince them either. Given that we believe there is a practical limit to the amount of dip or chutney that most people are likely to want to combine with the crunch of the conveyor product, we did not believe in practice that they were significantly different from potato crisps in terms of their ability to convey dips, etc.
Walkers have not yet commented on the ruling but may, nevertheless, file an appeal.
The case covers complex tax rules and we always advise getting professional advice on such matters. At Aston Bond we have worked alongside tax specialists and accountants in the past as needed. However, obtaining advice early on can avoid fines as well as hefty legal costs.
