United Biscuits (UK) Ltd v Revenue and Customs

Factual and Procedural Background

The Appellant manufactures and distributes food products, including a product sold as "McCoy's Dips," which combined a 100 gram packet of potato crisps with a 95 gram tub of dip, packaged together and sold as a single product. The dip is zero-rated for VAT purposes, but the dispute concerns whether the crisps should also be zero-rated or standard-rated. The appeal challenges the Respondents' ruling dated 28 May 2004 that the crisps do not qualify for zero-rating.

The product was available in three flavour combinations, with crisps specially designed for dipping, thicker and corrugated to hold the dip. The crisps of these flavours were sold separately in different sizes, but the 100 gram size included in the combined product was not sold alone. The dip was produced exclusively for this product and never sold separately. The intended market was supermarket buyers planning ahead rather than impulse buyers. The product was intended to be consumed together, offering a distinct "eating experience."

The relevant VAT legislation zero-rates food for human consumption but excludes certain items, including potato crisps packaged for consumption without further preparation. The legal question is whether the crisps in this combined product fall within that exclusion.

Legal Issues Presented

1. Whether the potato crisps included in the combined product with dip are zero-rated or standard-rated for VAT purposes.
2. Whether the crisps are "packaged for human consumption without further preparation" within the meaning of the VAT legislation's exception.
3. The proper interpretation of "preparation" in the context of dipping crisps into a dip.
4. Whether the principle from Card Protection Plan Limited v Customs and Excise Commissioners concerning the VAT treatment of dominant constituents applies to this product.

Arguments of the Parties

Appellant's Arguments

• The Appellant relied on the tribunal decision in Procter & Gamble UK v Customs and Excise Commissioners concerning Pringles Dippers, which are crisps designed to be eaten with a dip purchased separately. The tribunal held that such products are not packaged for consumption without further preparation and thus not excluded from zero-rating.
• The Appellant argued that their crisps, like Pringles Dippers, are designed to be eaten with the dip and not as standalone snacks, and the packaging reflects this intended joint consumption.
• The fact that the crisps can be eaten alone is not determinative; the critical factor is how the product is packaged and intended to be consumed.
• The product provides a different eating experience by combining crisps and dip, which should take the crisps outside the exception for standard-rating.

Respondents' Arguments

• The Respondents argued that the Procter & Gamble decision was wrongly decided on the point of "preparation".
• Even if Procter & Gamble was correct, the cases are factually distinguishable because in that case the dip was not supplied with the crisps, whereas in the Appellant’s product the dip is included.
• It is impossible to regard the mere act of dipping a crisp into a dip as "preparation" under the legislation.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Card Protection Plan Limited v Customs and Excise Commissioners (Case C-349/96) [1999] STC 270	Principle that for a single supply, VAT treatment of the dominant constituent applies.	The court noted neither party contended the product was a single supply to which this principle applied; if it did, the crisps would dominate and the entire product would be standard-rated.
Procter & Gamble UK v Customs and Excise Commissioners (2003) VAT Decision 18351	Consideration of crisps designed for dipping and whether they are zero-rated or standard-rated.	The Appellant relied on this decision to argue that crisps packaged with dip are not packaged for consumption without further preparation, thus qualifying for zero-rating.
Customs and Excise Commissioners v Ferrero UK Limited [1997] STC 881	Interpretation of the word "preparation" in VAT exceptions.	The court applied the ordinary meaning of "preparation" and held that dipping a crisp into salsa does not amount to preparation.

Court's Reasoning and Analysis

The court acknowledged the facts were uncontroversial and that the product was designed to be eaten with dip, with crisps specially made to be suitable for dipping. It accepted the Appellant's reliance on the Procter & Gamble decision but expressed reservations about the tribunal’s reasoning, particularly the analogy with breakfast cereals and rice cakes used in that case. The court emphasized the importance of the ordinary meaning of "preparation" and concluded that the act of dipping a crisp into a dip does not constitute "preparation" under the VAT legislation.

The court distinguished the product from those in Procter & Gamble by focusing on the nature of the dip being supplied with the crisps and the minimal action required by the consumer. It held that the packaging did not amount to packaging for consumption after further preparation because opening packets and dipping crisps is simply eating, not preparation. The court declined to apply the dominant constituent principle from Card Protection Plan Limited, as neither party advocated for it in this case.

Holding and Implications

The court DISMISSED the appeal, upholding the Respondents' ruling that the crisps are standard-rated for VAT purposes.

The direct effect of this decision is that the Appellant’s crisps, when sold as part of the combined product with dip, do not qualify for zero-rating. No directions were made regarding costs. The decision does not establish new precedent beyond the facts of this case and expresses reservations about the prior tribunal decision relied upon by the Appellant.