VAT – VAT rating of Pringles

Introduction

Cases such as this one always make headlines in the news area of the newspapers and television rather than the finance sections. “Pringle” is a well-known product. While the VAT treatment of Pringles as either zero-rated food or standard-rated crisps will not affect the general public in their popping and not stopping (“once you pop you can't stop”)!, it is good to see tax stories getting publicity.

The Facts

“Pringle” is the trade mark of a product of Procter and Gamble. It is a manufactured savoury snack product. The appeal concerned the variety known as “Regular Pringles”.

The following facts were taken from the VAT Tribunal:

• Regular Pringles are made from potato flour, corn flour, wheat starch and rice flour together with fat and emulsifier, salt and seasoning. The precise percentages of each ingredient of Regular Pringles have varied from time to time and are not identical in the range of flavours because, for example, the flavouring may affect the salt content.
• Regular Pringles are manufactured by mixing the dry ingredients into dough with water and emulsifier, cutting shapes out of a dough sheet, frying it for a few seconds, adding oil and salt, cooling it and then adding flavours. A similar procedure applies to corn chips like tortillas. It was considered that the unique feature of Regular Pringles was that the manufacturing process causes oil to go into the spaces throughout the texture of the product replacing the water content removed during the frying. This gives the “mouth-melt” feel when it is eaten. By contrast with potato crisps most of the fat stays on the surface.
• Regular Pringles have a regular shape in the form of a saddle, which aids stacking them enabling high production speeds. They are a uniform pale yellow colour, which is paler than a potato crisp. They have a crisp texture.

The important issue in this case was the amount of potato flour. In the final product this amount was around 40%-sometimes a little more, sometimes a little less. At the time of appeal, it was 42%.

Food products are generally zero-rated for VAT purposes. However there are some excepted items. One excepted issue is:

“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 products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell.”

The VAT Tribunal found against the taxpayer in that the Pringle was one of the excepted items and so was standard rated. The High Court found in favour of the taxpayer in that the Pringle was not one of the excepted items and so was zero rated.

Revenue have now appealed the High Court decision to the Court of Appeal.

The Issue

Whether Pringles are “similar [to potato crisps, potato sticks, potato puffs] and made from the potato, or from potato flour, or from potato starch.”

The Decision

The Court of Appeal allowed the appeal, which was in favour of the Revenue, by finding that Pringles were similar to potato crisps, potato sticks, potato puffs and made from the potato, or from potato flour, or from potato starch; and hence standard-rated.

In analysing the statutory provision, it was noted that the question was a composite question. So while it was convenient to ask separately whether Pringles were “similar” to potato crisps etc and whether they are “made from potato”, one had to take into account the composite nature of the question.

In reaching the judgement, the role and expertise of the VAT Tribunal were acknowledged. The following points were specifically noted in support of the decision.

I. Is a Pringle “similar to a potato crisp etc?”

The Judge stated that the Tribunal had perhaps concerned itself a little too much with how much the man in the street would know about the potato content of Pringles. It did not matter-one of the factors to be considered in judging similarity was, to the Judge's mind, clearly potato content.

II. The “made of potato” point

It had been argued that this meant that the product should be 100% made of potato or nearly so. It was noted by the Judge that not even potato crisps or potato sticks were 100% potato. Hence, it was improbable that Parliament intended that a product, to be similar, must do so. In addition, there was no lower limit to be met in order for a product to be made of potatoes.

Hence, Pringle were similar to potato crisps, potato sticks, potato puffs and made from the potato, or from potato flour, or from potato starch

The judgment is reproduced in the Selected Judgments section of this issue of tax.point and is available online at http://www.bailii.org/ew/cases/EWCA/Civ/2009/407.html.