Walkers Snack Foods v HMRC: Tribunal Rules 'Sensations Poppadoms' Similar to Potato Crisps for VAT Classification

Introduction

The case of Walkers Snack Foods Limited v The Commissioners for HMRC [2024] UKFTT 31 (TC) provides a valuable insight into how the UK First-tier Tribunal (Tax Chamber) addresses classification disputes pertaining to the standard rating of certain food products for Value Added Tax (VAT) purposes. Specifically, the issue revolved around whether Walkers’ products, described as “Sensations Poppadoms,” should be classified as similar to potato crisps and subject to the standard VAT rate under Note 5, of Group I of Part II of Schedule 8 of the VAT Act 1994 (VATA 1994).

Key Facts

The appeal concerned the VAT classification of two flavours of Walkers’ product “Sensations Poppadoms.” Walkers argued these products should be zero-rated, falling under the “food of a kind used for human consumption” category. However, HMRC deemed them subject to the standard VAT rate as “similar products made from the potato, or from potato flour, or from potato starch” under Note 5.

The argument put forward by Walkers was based on the assertion that the potato content was significantly lower than that of standard potato crisps and that the primary content, gram flour, imparted a distinctive character dissimilar to potato crisps. HMRC maintained that the potato content was substantial and that the products were indeed similar to potato crisps both in composition and consumer perception.

Legal Principles

The legal analysis of this case pivoted around the interpretation of Note 5 and whether the products could be construed as “similar to potato crisps” and “made from the potato or potato starch.” Relevant principles referred to included those from the case Proctor & Gamble UK [2009] EWCA Civ 407, commonly referred to as “Pringles,” where it was concluded that the assessment of similarity requires a multifactorial approach, and the final judgment is informed by an overall impression rather than a mechanical comparison of individual factors. Furthermore, Jacob LJ in Pringles underscored the need for a practical and not overly analytical approach.

The Tribunal also considered the principle of fiscal neutrality, as drawn from the CJEU decision in The Rank Group Plc v HMRC cases C-259/10 and C-260/10. This principle dictated that objectively similar supplies should be treated equally to prevent market distortion. However, the Tribunal ultimately found no breach of this principle as the evidence did not establish that the products were objectively similar to traditional poppadoms in a way that would influence consumer choice significantly.

Outcomes

The Tribunal found that the potato content of Walkers’ products was significant, contributing to approximately 40% of the product, thereby rendering them as “made from the potato or potato starch.” Furthermore, through a multifactorial analysis considering marketing, packaging, appearance, texture, flavour, and the retailers’ classification of the product as a snack food, the Tribunal concluded that the products bore enough similarities to potato crisps to be classified under Note 5.

An appeal to the principle of fiscal neutrality by Walkers was dismissed as the comparison needed to be between the products and potato crisps, not traditional poppadoms. The Tribunal also dismissed the argument concerning the distinction based on the products’ naming as “poppadoms,” as nomenclature does not determine VAT classification.

Conclusion

The First-tier Tribunal’s decision firmly adhered to the established facets of contingent legal principles, particularly those elucidated in the Pringles case, affirming the significance of a pragmatic and multifactorial assessment. Walkers Snack Foods Limited v The Commissioners for HMRC highlights the Tribunal’s commitment to ensuring consistency and clarity in the VAT classification of food products, underscored by a comprehensive evaluation of all relevant factors rather than an isolated assessment of compositional similarities. The decision serves as a clear guide for legal professionals navigating similar VAT classification disputes within the UK tax infrastructure.