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Appeal court overturns Pringles VAT ruling

21 May 2009
Categories: News , VAT
'Potatoness' of product means they are crisps, say judges

Pringles are crisps and liable to VAT, the Court of Appeal has ruled, overturning an earlier decision.

Last year, the High Court claimed that the popular snacks were cakes, and therefore zero-rated for VAT purposes, after food manufacturer Proctor & Gamble (P&G) argued that its savoury product-in-a-tube 'does not taste like a crisp or otherwise behave like one'.

As a result, HMRC were expected to be forced to returns millions of pounds to P&G in incorrectly paid taxes. The latest ruling, however, means that this will not be the case, and Pringles' maker will now be liable for £20 million of VAT every year.

It has been reported that P&G will also have to hand over £100 million in back taxes, but the company has claimed that, following an agreement with HMRC, it continued paying VAT following the High Court decision last year, and no additional payments are due.

The Court of Appeal case centred on the 'potatoness' of the snack: their content is 42% potato, which Lord Justice Jacob said is 'more than enough potato content for it to be a reasonable view that [Pringles are] made from potato'.

P&G had insisted that its product was, in fact, cakes because each one was more dough than potato and a uniform shape, unlike regular crisps - but the appeal court remarked that 'the "made from" [potato] question would probably be answered in a more relevant and sensible way by a child consumer of crisps than by a food scientist or a culinary pedant'.

'On another aspect of party food, I think that most children, if asked whether jellies with raspberries in them were "made from" jelly, would have the good sense to say "yes", despite the raspberries,' remarked Lord Justice Jacob by way of illustration.

Independent VAT consultant Neil Warren said that ‘a common decision has been reached’, and added that last year’s High Court ruling ‘brought the tax system into mockery’.

‘With VAT to work, it is important that it is liable to be determined by how the customer regards a product. If he or she thinks a Pringle looks like a crisp, smells like a crisp and tastes like a crisp, then it’s a crisp.’

Baker Tilly’s head of tax, George Bull, noted that the Court of Appeal's ruling 'is in stark contrast to the decision reached by the VAT Tribunal back in 2003 in respect of Pringles Dippers', which were deemed to be zero-rated because they were not packaged for consumption without further preparation (i.e. being dipped)

'That decision still stands, which means that Pringles shaped in a certain way with a slightly milder flavour are free from VAT, whereas regular Pringles are subject to VAT. Who said VAT was a simple tax?' added Mr Bull.

Categories: News , VAT
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