Crisp giant Walkers must pay VAT on its range of Sensations Poppadom snacks after losing an appeal at the First Tier Tribunal
Walkers Snacks Foods appealed at the FTT, rejecting HMRC’s claim that VAT should be charged at the standard rate on the snack.
HMRC stated on 4 June 2021 that the products should be standard rated for VAT purposes, however Walkers disagreed with this.
Walkers argued that the snack fell within Item I of Group I of Part II to Schedule 8 VAT which states that it was ‘food of a kind used for human consumption’ and that the snack did not fall into any of the exempt items of the category.
According to HMRC, the product did not fall into exempt item 5 of Group I ‘because they are “products [similar to potato crisps, potato sticks, potato puffs] made from the potato, or from potato flour, or from potato starch” and are “packaged for human consumption without further preparation”.
HMRC stressed that to not charge VAT at the standard rate on these products would ‘breach the principle of fiscal neutrality’.
Note 5, of Group I of Part II of Schedule 8 of VATA 1994 says: ‘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 shell.’
This was the only relevant question in this trial, in which it was found that the poppadoms were not specifically the potato items mentioned, but they were made from potato and had to be questioned whether they were ‘similar products’.
Initially, Walkers argued that the snacks were supposed to be consumed with dips or as a side with a meal and therefore required preparation so fell outside of Note 5.
However, the packaging showed no indication of this and the advertisement for the snack showed people eating them straight out of the packet. Walkers later withdrew this argument.
Both flavours contained potato substances, although both were slightly different. There are 17.5-18% potato granules, 17.5-18% potato starch and 4.25% modified potato starch, meaning 40% of the product is made from potato. The granules were contested by Walkers, arguing that not being referred to in Note 5 so should not be taken into account.
The tribunal judge, Anne Fairpo disagreed, saying: ‘We therefore find that the potato granules are not a substance “derived from potato” as contended by Walkers but instead should be regarded as being within the term “the potato” for the purposes of Note 5.’
In conclusion, Fairpo said: ‘We find that there is more than enough potato content for it to be reasonable to conclude that the products fall within the provision in Item 5’, adding that Note 5 is intended ‘clearly to include ‘products which have one or more substantial potato-related element’.
Walkers also stated that the product was called a poppadom, different to potato crisps but the FTT stated that because they were called poppadoms it did not protect them from Note 5 if they were made substantially from potato.
The FTT said: ‘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.’
Additionally, it was decided that any name given to a product does not determine if the product in question is similar to potato crisps due to the freedom of trademarking and manufacturers deciding the name.
PepsiCo, the owner of Walkers conducted a public survey to determine how people defined the product, to which 58% answered that they would buy ‘any poppadom’ instead if this was not available. Secondly, 78% agreed that the snack was a poppadom. The tribunal said that the survey was flawed as it did not ask complete questions and the percentages added up to more than 100% as the survey also found that 84% would buy another form of potato crisp instead.
The tribunal ruled that the product was predominantly a potato product, with the FTT stating: ‘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. For the reasons set out above, we consider that they are.’
The appeal from Walkers Snacks Foods was dismissed at the FTT.