You say potato and I say …. anything but potato actually. This is the level of existential obfuscation that only VAT and food can produce…
The issue is once again in the public eye following the recent tribunal judgment concerning the familiar Walkers Sensations snacks – a poppadom styled snack available in a variety of flavours.
The issue? Is the product one of the standard rated (‘excepted’) items listed in Group 1, Schedule 8 of the VAT Act?
To recap, ‘food of a kind used for human consumption’ is zero-rated for VAT purposes. However, certain ‘luxury’ food items are standard rated – e.g. ice cream, confectionery & alcoholic beverages.
HMRC argued that Walkers Sensations were standard rated items because they fell within excepted item 5 listed below:
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.
Walkers Sensations’ largest single ingredient is sunflower oil. However, each variety contains three potato derivative products that, together, would supplant sunflower oil as the main ingredient.
Walkers contended that the Sensations products were not similar products to potato crisps, sticks or puffs made from potato. They offered three principal arguments in support of their case.
- The products consisted of a much lower percentage of potato than other potato based snacks;
- Note 5 above does not mention ‘potato granules’ – (the implication appears to be that items made from potato granules were not made ‘from the potato’); &
- Sensations products were similar to poppadoms and, therefore, any similarity to potato crisps, sticks or puffs should be disregarded.
It should be noted at this point that HMRC does in fact accept that standard poppadoms are zero-rated food items. The principal ingredient in a traditional poppadom, however, is chickpea or gram flour.
What then ensued seemingly was a succession of surreal exchanges concerning whether the product was in fact a poppadom because this was how the product was described on the packaging.
Judges Fairpo and Gable rejected such nominative determinism and, injecting some humour into the proceedings, observed that the public did not believe that “Hula Hoops” were to be worn around the waist or that “Monster Munch” was “reserved as a food for monsters”.
In the end the judges were not convinced by the arguments Walkers provided and they found that the products were made from potato and potato starch and were similar to other potato snack products. These were the critical factors and the key considerations in determining that the product was standard rated for VAT purposes.
This case highlights the lengths food manufacturers will go to remain competitive in the snack food market and how technology is being used to create snacks using ingredients other than, or in conjunction with, potatoes in the hope of securing the ultimate prize – zero-rating. I note also that HMRC’s internal VAT manual has been subtly changed – it once said as an aid to determining the VAT liability of products containing potato products that for standard rating to apply; “potato must be the main ingredient” whereas now they just say that potato must be ‘present’ in the product.
