The Presence of Potato

The Presence of Potato

RICHARD CURTIS reviews a tribunal decision concerning the zero rating of food.

DESPITE BOOMING SALES of cookery books and the increasing popularity of cookery programmes on television, it is often remarked that, fewer people than ever before actually cook a meal from basic ingredients. Procter and Gamble UK noted a report in 2001 that 'the appetisers and dips market' was worth £2.1 billion in the year 2000, a 24 per cent increase compared to 1996 — resulting from the increased popularity of home entertaining, and the 'dips' sector was forecast to grow.

The company already produced 'Pringles' and saw the scope for a 'dipping product', incorporating the name 'Pringles' and similarly packaged in a tube, but with a different shape — suitable for eating with a dip. The new product was made from vegetable oil (39 per cent); potato flour (38 per cent — less than regular Pringles); wheat and corn (16 per cent); and seasoning (7 per cent). The company appealed against Customs' ruling that the product would be standard rated; Customs considered that it would not be zero rated under Group 1 of Schedule 8 to the VAT Act 1994 ('Food'), as it fell within Excepted Item 5:

'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 …'.

The tribunal identified three issues.

• Was the product packaged for human consumption without further preparation?

• Was the product similar to other products in Excepted Item 5?

• Was the product made from potato flour?

Preparation

The company argued that 'preparation' was not limited to the changing or altering of the product, whereas Customs argued that 'dipping' did not amount to preparation and meant more than 'serving with'.

The tribunal agreed with the company, noting from the comparisons that had been made that, for example, unflavoured rice cakes designed for consumption with cheese or toppings were zero rated (from Customs Notice 701/14: Food) as were breakfast cereals to which one simply added milk (from Customs' internal guidance). If these two examples were not within Excepted Item 5, the tribunal could not see why a blandly flavoured dipping chip should similarly be regarded as 'packaged for human consumption without further preparation'.

Similarity

The tribunal was presented with trays of products that were zero rated and others that were not. The company argued that 'similar' meant a consideration of ingredients, manufacturing process, appearance, taste, etc. Customs asked how an ordinary person would view the product.

The tribunal noted that 'we should not elevate issues of fact into questions of principle'. The company contended that the potato products mentioned in Excepted Item 5 — potato crisps, potato sticks, potato puffs — were made almost entirely of potato, whereas the new product was 62 per cent 'non-potato'. Customs argued that, although potato was only 38 per cent of the product, it was the main dry ingredient and all other products which had potato as their main ingredient were standard rated. However, the tribunal had concluded that the presence of potato, by itself, was not sufficient to take a product out of zero rating.

The tribunal considered other factors in looking for similarities with other products in Excepted Item 5. Packaging was 'not determinative, but was a relevant factor'. Manufacturing was also considered not to be decisive, but it was noted that the manufacture of the new product involved mixing ingredients, cutting and cooking, whilst potato crisps and chips were normally sliced potatoes.

Taste

Taste was important in that, although it could be eaten on its own, the new product's taste was bland to indicate the intention that it should be eaten with a dip.

Consequently, the tribunal concluded that the new product differed from potato crisps, etc. in ingredients, packaging, marketing, manufacture, appearance and taste.

Finally, was the new product 'made from potato flour'? The company argued that it would not be logical to standard rate a product which had 38 per cent potato flour as its main ingredient, yet zero rate a product which had a similar amount of potato flour, but where this was not the main ingredient.

The tribunal considered that because the words 'made from the potato' were not followed by 'or partly from' indicated that the products should be made wholly or substantially wholly from potato. The presence of potato was not, by itself, enough to take a product out of zero rating and, indeed, some products made almost wholly of potato (e.g. potato farls) were zero rated. Customs' 'main ingredient' test of dry ingredients only was not preferred and the tribunal concluded that the new product was not 'made from potato' within the meaning of Excepted Item 5.

The new product therefore did not fall within any of the three conditions required by Excepted Item 5 and the tribunal confirmed that it should be zero rated. This decision would mean that the Community principle of equal treatment would be complied with so that similar products would be treated in the same way for VAT purposes.

(Procter & Gamble UK (18381).)

Issue: 3965 / Categories: