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Cadbury fingered for aggressive tax avoidance

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25th Jun 2013
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Chocolate-maker Cadbury is the latest company to be caught in the media spotlight for aggressive tax avoidance after the Financial Times investigated its use of avoidance schemes.

The British company was bought in 2010 by American giant Kraft (now Mondelez) in a controversial £12bn deal.

The takeover was debated in the House of Commons, during which MPs warned that the sale would reduce tax coming into the Treasury.

According to the FT, however, Cadbury paid an average of £6.4m tax a year in the decade before it was sold, on annual profits averaging £100m.

The low total tax rate was achieved using schemes such as an arrangement codenamed ‘Chaffinch’ that took £17m off its tax bill between 2006-08, the FT reported.

Chaffinch was reportedly a dormant subsidiary of the company that lent £728m to Cadbury's UK financing company in 2006.

Reportedly, the borrowing entity booked the debt at £671m and reported the £57m difference as interest paid over the 18 months to mid-2008. This sum was deducted from its profits over that period.

The Chaffinch loan was structured as a zero-coupon convertible note with no interest. This was designed to produce a £17m tax saving with no reciprocal taxable income for Chaffinch.

Another arrangement included sheltering around £400m in the Cayman Islands to save the company £9m in tax.

It also devised schemes to engineer interest charges that could be deducted from its gross profits and channelled funds to finance growth in countries with lower tax rates, including Ireland.

One of several confectioners that prospered during the Victorian era, Cadbury was founded in 1824 by a philanthropic Quaker, John Cadbury.

Tax campaigner Richard Murphy, who ironically gets funding from the Joseph Rowntree Charitable Trust, welcomed the FT investigation, but was not surprised by it.

“Cadbury’s abuse has been known for a long time,” he blogged.

“This is why country-by-country [reporting] is so important: if this had been in place then much of this activity would have been exposed because intra-group trading and financing across borders would all have to be on the record in country-by-country reporting.”

Mondelez could not comment on the investigation. The company said: “The FT article relates to a period from 1997-2010 when Cadbury Schweppes Plc and Cadbury Plc were entirely independent businesses. It would therefore be inappropriate for us to comment.” 

Replies (46)

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By Happy Up North Accountant
25th Jun 2013 14:29

Love it

Haven't even read the article - but what a spankingly good headline you went with there!

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Replying to Accountant A:
Quack
By Constantly Confused
26th Jun 2013 11:30

My sentiments exactly!

Happy Up North Accountant wrote:

Haven't even read the article - but what a spankingly good headline you went with there!

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Should Be Working ... not playing with the car
By should_be_working
26th Jun 2013 11:43

Ah, The Murphmeister's Back!

Richard Murphy says

"Cadbury’s abuse has been known for a long time"

... and yet his beloved 'county by country reporting' is needed so that this sort of thing can be exposed.

Either it's been known about for a long time, or it needs exposing - which is it?

More generally, of course, if you want to reduce tax avoidance, reduce taxes.

 

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By listerramjet
26th Jun 2013 11:45

headlines

perhaps a more appropriate one might be "chocolate company complies with tax rules". 

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By Rachael White
26th Jun 2013 11:46

Or, perhaps, Cadbury flakes on tax?

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By alan.falcondale
26th Jun 2013 12:01

or perhaps

Cadbury's tax takes the biscuit

Sounds a bit flakey to me

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By ranger1970
26th Jun 2013 12:08

THIS SHOULD BOOST THE GOVERNMENTS COFFERS

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By ashbury
26th Jun 2013 12:17

As a non-accountant, I find it a bit repugnant that you lot seem to find it fine to keep coming up with these wizard schemes for big, wealthy companies to avoid paying their fair share of tax, presumably for large fees, and then to slap each other on the back. This is not a game. For every winner there's a loser and it's pretty obvious who the losers are when people like Cadbury's start doing this kind of stuff. The sooner tax is assessed on turnover the better so all the companies doing these fancy dance steps are stopped in their tracks. This is someone living in the real world talking.

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Replying to lionofludesch:
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By igornumber7
26th Jun 2013 13:05

The fact is government is responsible for drafting tax law and it's implementation. It can draft it more tightly or less tightly depending upon it's wishes. Tax evasion is rightly illegal, however tax planning within the confines of the law is not illegal. Every time you open an ISA or make a payment to a Pension you are undertaking a form of tax planning within the law. If Parliament is unhappy with the current law it is in it's power to correct it. Instead it moans about people using the gaps in the law which it originally created to reduce their taxable income. The best voice as ever on this is Lord Clyde 

"No man in the country is under the smallest obligation, moral or other, so to arrange his legal relations to his business or property as to enable the Inland Revenue to put the largest possible shovel in his stores. The Inland Revenue is not slow, and quite rightly, to take every advantage which is open to it under the Taxing Statutes for the purposes of depleting the taxpayer's pocket. And the taxpayer is in like manner entitled to be astute to prevent, so far as he honestly can, the depletion of his means by the Inland Revenue"

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By karen.morriscook
26th Jun 2013 12:31

turnover tax

As an accountant I find that in the main I agree with Ashbury - however I cannot agree that a turnover tax is the answer.  We already have a turnover tax which is VAT and for small business who just go over the threshold it is crippling and with employers ni to pay at a rate of 13.8% the type of companies I deal with may have a reasonable turnover but at the minute very low profits.

You cannot take a sledgehammer to crack a nut - you need to ensure that these large companies that have the money and resources to take advantage of these tax schemes are stopped without it being to the detriment of the small business man who is currently struggling to make a living.  Too many people hear the word "Director" and assume that they are running large companies and creaming money off the top - a lot of directors may be the only person in the company or perhaps employ a couple of people and I see people every day who would actually be better off financially on jobseekers - if someone came along and took a big wedge of their turnover in tax they would very quickly be joining the jobless queue.

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By andrew.hyde
26th Jun 2013 12:34

@ashbury

To be fair, this kind of debate usually brings out a mix of views here, as well as some execrable puns.

As for me, do I support aggressive avoidance?  I should cocoa!  Do you take me for a fruit and nutcase?  Cadbury has clearly gone over to the dark side, and is trying to milk it for all it's worth.  It's hard to digestive you're someone who pays all their taxes.

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By johnjenkins
26th Jun 2013 12:36

@ashbury

If indeed you do live in the real world you should know that whatever humans devise, humans will work round. When governments are seen to be wasting tax payers money, some tax payers may decide that they won't contribute so much just as long as they don't do anything illegal.

If you really want to wonder why some of us treat it as a game just have a look at IR35 and all its complexities. As for tax being assessed on turnover have a look at what google have done.

Finally as a non-accountant what are you doing here?

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Replying to raybackler:
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By ashbury
26th Jun 2013 13:11

Cadbury et al

@johnjenkins Ooo... do I sense a whiff of pique here? A very clued-up non-accountant who ran a small business and looked after all his own accounts and tax affairs. Also for a while worked with small accountants and solicitors in a support role. You don't have to be an 'actual' accountant to be a member her, did you not know that? Whose definition of 'wasting taxpayers money' do you use? I suspect just your own. Nobody agrees with every decision any government makes on how to spend taxpayers' money. It's called democracy. It doesn't give anyone the right as a result to decide how much tax they think they should contribute to the national exchequer, in favour of their interests alone and against that of other taxpayers who are then left with a disproportionate share of the burden. You will think differently of course, especially if you're on the receiving end of aforesaid big fees. BTW I'm retired now but still keep up a healthy interest in affairs like this. Should I not?

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By Robert Hurn
26th Jun 2013 13:00

Ban Chocolate

The wife would then be more amorous

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By listerramjet
26th Jun 2013 13:26

fair tax? aggressive tax avoidance?

I have absolutely no idea what "far tax" means.  Others have said it better, but tax is something the government imposes by statute - either you comply or you don't.  If you don't you go to prison.  Simples.  So equally I have no idea what aggressive tax avoidance means.

What does seem clear is that people use these terms to futher usually a political agenda.  But as a humble person, I find it worrying/wrong to see individuals villified to futher someone's hidden agenda - mob rule is not something I will support.

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Should Be Working ... not playing with the car
By should_be_working
26th Jun 2013 13:34

@ashbury

Tax is 'repugnant' - if we're going to get moralistic about it - a 'necessary evil'. Most people accept paying taxes that fund essential public services. What they object to is paying taxes that fund the non-essential public services and the waste. Cadbury didn't decide how much tax to pay - Parliament did that for them.

More practically, bearing in mind the principle of tax incidence, any tax which Cadbury saves represents less of a burden on it's employees and shareholders - people and pensions, if you will.

And no I don't get involved in 'aggressive' tax avoidance - I leave that to the specialists, but no client has ever asked me not to keep their tax bill to a minimum - indeed I would be neglecting my duty of care to them if I failed to mitigate their liabilities, and that applies to any accountant whether they're acting for Bloggs the one-man builder or Cadbury's.

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By Hayter
26th Jun 2013 13:42

Cadbury fingered . . .

Or another alternative -

Cadbury Fudge Tax

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Replying to DJKL:
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By listerramjet
27th Jun 2013 12:26

agggggggh

"finger of hodge" - going to have to have a 2lb bar of galaxy to get over this one.

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By ghewitt
26th Jun 2013 13:42

Meh

The whole thing is fuelled by sickening greed; plain and simple.

All these headlines are just sops to the public to make you think 'something is being done' and what a noble profession the journalists are. Corporate greed and political greed go hand in hand; I dare say if you were to inspect the hands of parliament quite a few would have chocolate on them - as well as a load of other stuff from the lobbyists. Nudge, Nudge (or should that be Fudge Fudge), wink wink, say no more.

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By Hayter
26th Jun 2013 13:51

Cadbury fingered . . . part 2

Can someone explain to me why we bailed out the Irish economy to the tune of £6bn without insisting that the reciprocal arrangement would be for them to increase their corporation tax rate? What on earth did Ozzy Ate My Pasty Osbourne think was going to happen to the UK tax take for those global companies with trading operations in the UK?

It seems to me that intellect is in short supply at SW1A 2HQ

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Replying to GW:
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By John A. McElhinney
26th Jun 2013 15:27

The Irish economy was not bailed out you or the British Treasury or, indeed, any person or body in the UK.

I presume you are referring to the subsidiary of the Royal Bank of Scotland (RBS), the Ulster Bank (UB), which trades in the whole of Ireland.

As a customer of that bank for over 40 years, my understanding is that the "centre of management" and thus the residency for tax purposes is/was in Belfast, although, it may now be in another part of the UK. So the tax on the profits of the UB were paid to HMR/HMRC for the past 100 plus years.

In 1906, the House of Lords decided, in De Beers Consolidated Mines Ltd v Howe 5 TC 198. I suspect that that decision was a "policy" decision (for the UK Treasury). But, it is accepted by many common law countries, including Ireland. In the US, the tax residency is dependant on the country or incorporation, so that results in a tax planning opportunity. It would be a dereliction of duty of any company director, owed to the shareholders, if they did not employ a firm of accountants/ tax consultants to minimise the tax payable. 

 

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Replying to kevinringer:
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By Hayter
27th Jun 2013 14:13

The UK contributed an estimated £8bn to the EU/IMF bailout of €85bn in November 2010. This was partly by way of loans totalling an estimated £3.2bn - £3.8bn and the balance under previously agreed arrangements to contribute to EU/IMF coffers in such circumstances.

The fact that a couple of weeks ago Ulster Bank (which does most of it's business in the Republic anyway) and associated management thought it was an incredible wheeze to mick-turate (sic) over this bail-out really just goes to prove the question. Why on earth wasn't there a price for our support.

 

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By peterhool
26th Jun 2013 14:03

What is the greater sin?

Sheltering profits from tax is commonplace and often legal within the currently drafted legislation subject to legal opinion if challenged.

 

So maybe legal but is it morally justifiable? The counter argument being is the way Governments spend taxes necessarily all morally justifiable? For example large chunks of money are being recycled through Brussels to fund dubious expense claims etc to name but one potential sin.

 

A lot of our taxes finance our Health systems and ironically Cadbury have refused to participate in the new food labeling agreement. One major reason is doubtless because most of their products would glow red because of the high sugar content. Sugar is now recognised as the major cause of obesity and many of our health problems.

 

So Cadbury products create the need for more tax to maintain health but the profits from making us ill contribute a derisory amount towards healing us.

 

The way we deal with health and wealth in most of the World is outmoded, unworkable and if not changed will make the current recession look very modest.

 

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By johnjenkins
26th Jun 2013 14:09

@ashbury

So you've explained what you are doing here and yes it's good to keep a healthy interest in Aweb. If you are that "clued up" you should realise what this is all about instead of just having a go at us. We all know that we have to contribute to the running of the country but when we see big earners getting winter fuel payments EU getting handouts because they can, banks being bailed out because they have lost tax payers money etc.etc. then is it little wonder some tax payers might think "no way". To have a pop at some of us because we agree with that thinking is in my view rather aloof.

What is the alternative to telling governments that they can't keep going down these roads?  

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By Robert Hurn
26th Jun 2013 15:13

Cadburys Will Pay as Little as the Public Allow

If consumers are so angry that they stop buying Cadbury’s profits the message will get through and the company will change.  But I think that a consumer backlash is unlikely to last more than a few days.

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By jamiea4f
26th Jun 2013 17:06

Tax avoidance

I attended a seminar on how to avoid your tax using various dubious schemes which hadn't yet been shut down by HMRC (but maybe, possibly, could be in the future).   The Company who presented the seminar apparently had the best legal (tax-related) brains in the business who pretty much seemed to spend all of their time coming up with ever more ingenious ways to reduce/avoid tax.  You could of course join these schemes if you stumped up a large wedge, appropriate to the amount worked out that you would save if you were to be a regular tax slave like everyone else, however if it was ever worked out by HMRC that these schemes were illegal then you lost that money - in addition to the back tax you may become liable for.  It strikes me that the best way for HMRC to discover these schemes would be to attend seminars like these (incognito, of course).  Simple.  I do also think that the majority of these Amazon/Google/Starbucks etc schemes bring to mind the Enron fiasco, which was quite a while ago now and promised sweeping reforms so that what happened there could never happen again.  Hmmm.

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By mikewhit
26th Jun 2013 17:17

"Turnover tax"

The only way that turnover could be used in a tax calculation would be for example if the national governments decided to tax global multinationals on their global profits by country pro-rata according to country turnover.

Hence if half of Cadbury's global turnover came from the UK, then the arrangement would be that half of its global profits would be subject to UK tax.

But I have no doubt that a scheme would arise to circumvent that rule ...

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By User deleted
27th Jun 2013 08:01

Please, not again

the "morals v tax advice" debate has been done to death several times already

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By North East Accountant
27th Jun 2013 09:08

Influencing Behaviour

The government uses the tax system to influence peoples behaviour all the time.

they can't have it both ways ie. Ok for them to influence you to do something or not and then be upset if companies and people comply with the laws they make but get a favourable tax result.

Cut out public sector waste, keep taxes as low as possible and keep the laws simple!

Company and individual behaviour will follow and tax receipts increase.

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By johnjenkins
27th Jun 2013 09:18

@North East Acco

 

(Cut out public sector waste, keep taxes as low as possible and keep the laws simple!

Company and individual behaviour will follow and tax receipts increase.) 

Never a truer statement made. It is about time governments started to trust OUR judgement rather that have decisions made by people that haven't got a clue (EU take note).

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By The Black Knight
27th Jun 2013 10:41

And who is still eating Cadburys I ask?

Will you not be supporting and becoming Fat CATs yourselves?

YOU have a choice just say No!

You could lower the NHS bill and be better on the eye rather than waddling your way through life moaning that your chocolate dealer doesn't pay enough taxes to support your lifestyle.

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By andrew.hyde
27th Jun 2013 10:48

A finger of Hodge

I do wish you hadn't put that image in my mind

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By johnjenkins
27th Jun 2013 10:52

Even worse

can you imagine Hodge in the flake adverts.

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By edwincrump
27th Jun 2013 11:41

Cadbury and Kraft

I'm not surprised. Nothing about Kraft is beyond belief since the disgraceful episode over the Brisitol factory when they bought Cadbury. The woman running Kraft should have been extradited to the UK (ot arrested in the UK) to face a charge of obtaining a pecuniary advantage by deception

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By JackHarper
27th Jun 2013 12:57

Tax avoidance and tax rates

In Mr Mehjoo's recent negligence case he was not prepared to pay tax at 10% and paid £200,000 for a scheme to avoid £850,000 unsuccessfully. The High Court ordered his accountant/insurers to pay him both sums, as last resort guarantors of the outcome. As the kind of specialist to whom the judge thought he might have been usefully directed, this attitude on the part of clients does nor surprise me. It is up there with their unshakeable belief in their own immortality.

Perhaps we should have negative tax rates to encourage them to beat that system by paradoxically generating a positive charge.

I don't mind what tax system or tax rates we have provided it stems from law properly created.The present methods are not perfect e.g the annual Finance Act is largely a product of HMRC and Parliamentary Counsel trying to transform into legislation, to be interpreted by judges, the ephemeral outline only policy and ideas of politicians who abhor technical detail. Only the latter are elected and once elected they spend at least 3 of the next 5 years getting re-elected.

A significant inroad has been made into how taxes are charged. Concessions now need to be legislated so we are generally no longer taxed by law and untaxed by concession. Now however we may be untaxed by law and taxed by GAAR. Under this system HMRC and the GAAR panel will de facto tax anything lawful which is not doubly reasonable. Any judge that gets involved on appeal must take into account the utterances of these other non-elected people.Litigation is still as free as the Ritz Hotel but few will attempt to litigate something given the thumbs down by the panel.

It seems reasonable to assert that everyone should pay their fair share of tax (though perhaps not with the monotonous regularity of HM Treasury). Who decides what is fair? Mr Gauke, Mr Mehjoo, Mr Murphy, Mr Assange, Mrs Hodge, a panel of the Great and Good, the Dalai Lama, the head and masters of Eton, the Board of Liverpool FC, GCHQ?

As Mr Winstone would say: "Do me a favour".

 

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By filtaxrite
27th Jun 2013 17:46

The Government via HMRC is pulling out all the stops to tackle tax avoidance. It has been around a long long time and even small businesses are involved by not disclosing income if they are involved in 'cash' receipts. 

It would suit the tax profession I think if the government would take a long hard luck at the tax system and make it easier to understand with less ambiguity and at the same time reduce the tax rates making it all less cost effective to get involved in spurious tax mitigation exercises.

Failure to do this will only keep the tax avoidance experts in business - make no mistake after 50 years plus in the tax profession one loophole closed will only generate a substitute scheme or even schemes!

My view there are more tax experts outside HMRC than inside and the government are on a hiding to nothing.

It is a battle not worth the cost - make it simple and reduce taxes including NI contributions

 

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Replying to Ruddles:
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By The Black Knight
28th Jun 2013 11:16

That's Evasion

filtaxrite wrote:

The Government via HMRC is pulling out all the stops to tackle tax avoidance. It has been around a long long time and even small businesses are involved by not disclosing income if they are involved in 'cash' receipts. 

That's evasion not avoidance they are two different topics.

It would help everyone if people understood this.

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By Tax Networks
28th Jun 2013 14:44

What did Cadbury's do for us?

Well they built a factory, yeh but what did they do for us; they employed and paid people and remitted the taxes to HMRC, OK but what about the CT avoidance; Everyones a fruit and nut cake...

Finger licking good or bad?

Not too sure where this is taking us apart from yet another substantial UK employer utilising tax loopholes which may or may not work. 

Chocolate and avoidance - The're in the stickiest situation since Sticky the Stick Insect got stuck on a sticky bun (sorry but couldn't help myself as it's Friday)

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By User deleted
29th Jun 2013 15:51

Personally ...

I prefer Nestles or Mars chocolate products.

I find Cadbury chocolate gives me headaches, God alone knows what they put in it!

If I wanted simple chocolate i would have a bar of Galaxy (Mars), but I prefer a bit of texture so my top choices are Lion Bar. KitKat and Drifter (Nestles), although I do like a Picnic bar (Cadbury)!

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Replying to Portia Nina Levin:
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By The Black Knight
01st Jul 2013 09:51

IF

Old Greying Accountant wrote:

I prefer Nestles or Mars chocolate products.

I find Cadbury chocolate gives me headaches, God alone knows what they put in it!

If I wanted simple chocolate i would have a bar of Galaxy (Mars), but I prefer a bit of texture so my top choices are Lion Bar. KitKat and Drifter (Nestles), although I do like a Picnic bar (Cadbury)!

If I could get tax relief on it I'd send you a bar!

 

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By johnjenkins
01st Jul 2013 10:12

@IF

Ah, but under certain circumstances you can get tax relief. So watch out BK looks like  the wrong kind of bars coming your way.

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Replying to Duggimon:
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By The Black Knight
01st Jul 2013 10:44

that's perverted

johnjenkins wrote:

Ah, but under certain circumstances you can get tax relief. So watch out BK looks like  the wrong kind of bars coming your way.

that's perverted but I like your thinking!

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By andrew.hyde
01st Jul 2013 13:46

Sorry but...

...the last few posts have gone completely over my head.  However I'm sure it's filthy so I condemn it utterly.

Won't someone think of the children?

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By johnjenkins
01st Jul 2013 16:33

@andrew.hyde

Are you that clever that everything you don't understand must be filthy? Or are you talking about sticky fingers?

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By User deleted
02nd Jul 2013 12:48

When the PII goes up as a fall out ...

... we won't be able to afford chocolate bars and will have to make do with inuendo anyway!

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