Procter & Gamble has lost a legal battle with HMRC over its Pringles snack and will now have to face paying tens of millions of pounds in VAT.
The Court of Appeal has ruled in favour of HMRC, who have long maintained that Pringles are a potato snack and are, therefore, liable for VAT. This overturns the decision of the High Court last summer, in which the Court ruled that the snack was exempt from the tax.
Foods are usually exempt from VAT, but one of the few exceptions is the potato crisp.
In July 2008, the High Court judge ruled that Pringles' packaging, "unnatural shape" and the fact that the potato content is less than 50% meant the snack was exempt from VAT. However, the Court of Appeal judges disagreed with this argument.
Lord Justice Jacob said "There is more than enough potato content for it to be a reasonable view that it is made from potato." - potatoes make up 42% of the Pringles' ingredients.
He added that the lawyer acting for HMRC advised him the VAT due on the sale of Pringles was "as much as £100m of tax for the past and about £20m a year for the future."
But a spokesperson for Procter & Gamble said the company had been paying VAT on the snack pending the appeal process, and so would not face the struggle of finding cash for any back taxes.
While praising the "simplicity and common sense" of the judges, Toby O'Reilly, director in indirect tax at Ernst & Young, said an opportunity had been missed to provide "coherent guidance" on which snacks are, and which are not, subject to VAT.
At last year's High Court hearing, Procter & Gamble insisted that their best-selling product was not similar to potato crisps, because of their "mouth melt" taste, "uniform colour" and "regular shape" which "is not found in nature".
It also argued that potato crisps - unlike Pringles - did not contain non-potato flours, and were not packaged in tubes.
Pringles are more like a cake or a biscuit, it claimed, because they are manufactured from dough.
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Why did p&g care about the VAT? <br /> <br /> They buy ingredients corn, potato, flavouring, goo etc., and cook it.<br /> <br /> Then they flogged it to their wholesalers. In this case they omitted to charge vat when they should have done, so now they have lost they merely have to send out vat invoices to their customers, and collect all the vat.<br /> <br /> The drama of ‘curse’ is that they won’t be able to trace some customers, and others may be time-barred.<br /> <br /> The real error was to resist charging the second HMRC banged on their door. They should have immediately collected the loot, whilst appealing if they really had nothing else to do.<br /> <br /> The real chap to fight this case was Abdul Salim Corner Shop Ltd of Wolverhampton, because he is the only guy who eventually takes a hit as he can still only flog the things for 99p irrespective of vat status.<br /> <br /> PS. Only a lawyer could stand up and SERIOUSLY argue Pringles are not crisps!! Thank heavens he lost on madness grounds….otherwise where is reality?