When is a crisp not a crisp? When it’s a poppadomby
Walkers Snack Food Limited bravely attempted, but ultimately failed, to prove that its Sensations Poppadoms was a side dish, not a crisp, and should be zero-rated.
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 juicy IR35 case, keep scrolling. This case is all about the salty snacks.
Most AccountingWEB readers will be relatively well versed in the VAT treatment of various foodstuffs. Nevertheless, here is a quick reminder of the legislation specific to this case.
Schedule 8 of VATA 1994 lists goods and services that are zero-rated for VAT. The list includes “food of a kind used for human consumption”, save for items specifically excluded which are listed as “excepted items” in Group 1 of the schedule.
Note 5 of the excepted items 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, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in the shell.”
The subject of this first tier tribunal (FTT) case is Walkers’ Sensations Poppadoms, which are available in two flavours: Lime and Coriander Chutney and Mango and Red Chilli Chutney. For the purpose of the hearing they are referred to collectively as “the product”.
HMRC sought to show that the product had similar characteristics to crisps, hence fell within Note 5 and should be standard-rated.
Similar to the case of Proctor & Gamble UK  EWCA Civ 407 involving Pringles, the decision was multifactorial. Marketing, appearance, flavour, texture, manufacturing process, ingredients and other various factors were considered.
Clutching at cheese straws
The first argument put forward (and subsequently withdrawn) by Walkers was that the product was designed to be eaten alongside a meal as a side dish, and should be eaten with dips, chutneys and pickles. This, the appellant claimed, meant that the product required further preparation before consumption.
This line of argument was quickly debunked in somewhat of an own goal (sorry Gary) as it was noted that there was no mention on the packaging that preparation was required. Further, Walkers’ promotional material showed images of people eating the product directly from the bag.
Wotsit made of?
Of course, the closest parallel to the Pringles case was the ingredients, namely whether the potato content of the product was high enough for it to fall within Note 5.
Poppadoms in the traditional sense (which are zero-rated) are made from gram flour, not potatoes. The products do indeed contain gram flour and this, Walkers argued, distinguishes them from the potato-based crisp market sufficiently to fall outside of Note 5.
The product contains approximately 18% potato granules, 18% potato starch and 4% modified potato starch. Walkers argued that Note 5 does not make mention of potato granules so they should not be included in an assessment of the potato content of the product.
HMRC contended that potato granules should be included in the potato content and, after witness evidence of the production of potato granules, the FTT agreed. The product was therefore found to contain around 40% potato content, which according to the judge was “more than enough potato content for it to be reasonable to conclude that the products fall within the provision in Item 5 that relevant food be made from the potato … or from potato starch”.
Various elements of the product’s branding were discussed, including the font on the packaging, which the appellant described as “evocative of Indian text” and the name of the product. Walkers put forward that the name “poppadoms” differentiated the product from potato crisps. I’ll hand over the mic to Judge Fairpo for this one: “We consider that this simply means that the word ‘poppadom’ is not a protected term. 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.”
Our survey says… not a lot really
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?”
The full question was not provided in the information but was presumably along the lines of “if this product was unavailable…”. This evidence was not considered particularly helpful as the questions provided were incomplete and lacked context and in any case, the answers added up to more than 100%, with 84% responding that they would purchase some other form of potato crisp.
Walkers argued that to deny the products a zero-rating would breach fiscal neutrality as other similar supplies, eg poppadoms, are zero-rated. As poppadoms are not made of potatoes, and HMRC had successfully shown that the product is predominantly potato-based, the tribunal did not consider that fiscal neutrality had been breached.
Judge Fairpo concluded, “The use of the word “poppadom” is something of a red herring (to badly mix foodstuffs). 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.“
HMRC asserted that in fact to apply a zero-rating to the product would breach fiscal neutrality, awarding them an unfairly advantageous treatment compared to other products in the crisps market.
Ultimately, despite the commendable efforts to prove otherwise, the FTT decided for HMRC.
Judge Fairpo said, “Having concluded that the products 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.”
The product was found to be within Note 5 and therefore standard-rated. This, according to the FTT, does not breach fiscal neutrality and the product can continue to sit with its crispy cousins on the shelves of the snack aisle.
(Editor's note: The article refers to Note 5, but it is actually Excepted Item 5. Note 5 is to do with confectionary. We've referred to Note 5 throughout to remain consistant with the judge's remarks in the tax tribunal document.)
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Consulting Tax Editor for AccountingWEB.
I have spent the last 10 years teaching the accountants of the future, mainly ICAEW advanced level corporate reporting. I also cover tax news and write and edit tax updates for other publishers including PTP Limited.