Weekly VAT News

Walkers Snack Foods Ltd: whether zero-rating applies to Sensations Poppadoms – FTT

Walkers’ Sensations Poppadoms are made of potato granules (18%), potato starch (18%), and modified potato starch (4%). They also contain gram flour (14%) and rice flour (14%). They are not potato crisps (which are excepted from the zero-rating), but they are subject to VAT if they are “similar products made from the potato, or from potato flour, or from potato starch”. The First-tier Tribunal has ruled that potato granules were a form of potato (cooked and dried), and that when combining all the potato ingredients there was sufficient potato content for the Poppadoms potentially to be subject to VAT. The FTT then considered that Poppadoms were marketed like crisps, would be found in the snack food aisle next to crisps, would be eaten like crisps, and had a similar texture and ingredients to crisps. Applying a multifactorial assessment, the FTT concluded that they were similar to crisps even though they might be called ‘poppadoms’ and despite a market survey produced by Walkers (which the FTT concluded was not particularly helpful). Walkers initially put forward an alternative argument that Poppadoms are designed for dipping and therefore require “further preparation”, and so would qualify for zero-rating. However, Walkers’ marketing material, including packaging, suggested that no preparation was necessary. Accordingly, Walkers did not rely on this argument at the hearing. Sensations Poppadoms are therefore subject to VAT. (Contact: Andrew Roberts) 

HMRC ‘one-to-many’ campaign – selling via online marketplaces

The Chartered Institute of Taxation (CIOT) has reported that HMRC have an upcoming one-to-many campaign aimed at checking the place of establishment of businesses selling via online marketplaces. HMRC will be asking businesses registered at agent or serviced office addresses to provide evidence that they are established in the UK. “The letter campaign is part of HMRC’s ongoing work to ensure overseas traders operating through online marketplaces cannot undercut legitimate traders by not paying VAT”. The CIOT states, by way of background, that the letters are aimed at businesses which HMRC consider may not have UK establishment for VAT, with a view to ensuring VAT records are up-to-date and that VAT is correctly applied by online marketplaces facilitating sales for overseas-based sellers. (Contact: Harry McDowell)

G.A. v Hauptzollamt Braunschweig: import VAT on smuggled cigarettes – CJEU

If cigarettes are smuggled into the EU, then the person found with the cigarettes is potentially liable to indirect taxes on them. In 2012, G.A. bought 43,760 Ukrainian/Belarussian cigarettes at a market in Poland, and took them across the border into Germany (without informing the customs authorities), where he was arrested. After confiscating and destroying the cigarettes, the Brunswick customs office in Germany issued a tax notice for import VAT of €2,006. The Community Customs Code specifically allowed the customs office to pursue G.A. for customs duty in Germany (if the duty was less than €5,000). The customs office argued that the same rule should apply to import VAT, which is chargeable on dutiable goods “when the chargeable event in respect of those duties occurs and those duties become chargeable”, i.e., on importation (Article 71 of the EU Principal VAT Directive). The CJEU has now ruled that this provision only established the time when import VAT became due, without specifying where it became due. It did not establish a general link between the customs code and the VAT directive. Unlike customs duty (which accrues to the EU irrespective of which Member State collects it), import VAT has to apply in a particular territory. In this case, the cigarettes had been imported into Poland rather than Germany, and the Brunswick customs office was not therefore entitled to pursue G.A. for import VAT. (Contact: David Walters)

This week’s VAT case calendar

On 23 or 24 January, the Court of Appeal will hear the taxpayer’s appeal against the Upper Tribunal decision in Prudential Assurance Company Ltd on VAT groups and continuous supplies of services.