Why solicitors need professional indemnity insurance

He's The Terminator

Is the law crazy?

Ever wondered why solicitors need legal professional indemnity insurance? This case may go some way to explaining how complex the law can be.

This is the bizarre case of whether or not Pringles are classed as crisps. Their maker, Proctor and Gamble, had gone to court to contend a VAT and Duties tribunal verdict that declared Pringles should fall into the 17.5% rate relevant at the time. In July 2008, a judge at the High Court ruled that Pringles were tax exempt, based on their packaging, ‘unnatural shape’ and content being less than 50% potatoes (42% to be precise). Foods are normally exempt from VAT but some snacks, such as potato crisps, are one of a small number of exceptions. For VAT to apply, the potato crisp should be wholly, or substantially wholly, made from potatoes. Proctor and Gamble argued that Pringles didn’t fall into this category.

The crisp made from dough

At the High Court hearing, Procter & Gamble defended their top selling product, saying it was completely unlike potato crisps because Pringles had a unique melt-in-the-mouth taste, a regular shape and a uniform colour. Since all these characteristics can’t be found in nature, Pringles simply couldn’t be a potato crisp. The company also maintained that most potato crisps weren’t made from the same ingredients as Pringles, namely potato flour, corn flour, rice flour, wheat starch, emulsifier, fat, salt and seasoning, all mixed to form a special type of dough. They claimed that since Pringles are made from this special dough mixture they were closer to the biscuit or cake rather than the crisp. Moreover, regular crisps weren’t found in tubes, rather in packets.

Hefty back-tax could be due

The Inland Revenue’s lawyer has estimated that the VAT due from Pringles’ sales was something in the region of £100m, based on past sales and around £20m per annum for the foreseeable future. Procter & Gamble, however, claimed they’d paid VAT on their Pringles while the appeal was in progress and so they weren’t liable to pay the chunk of tax estimated for past sales.

The Revenue know their crisps

The case went to the Court of Appeal and the judge overturned the High Court’s decision, ruling in the Inland Revenue’s favour. For their part, the Inland Revenue has always been of the opinion that Pringles are indeed a potato crisp and should therefore be liable for VAT. The Appeal Court said that, after all, Pringles contained sufficient potato content to form a reasonable view that it was made from potato. So, Pringles are VATable.

Guidance on snacks needed

While many lawyers commended the common sense and simplicity used by the judges, some believed there’d been a missed opportunity to create coherent guidance on those snacks that are subject to VAT and those that aren’t.

Lawyers were left baffled by the case that demoted the Pringle from being a vital tax-exempt foodstuff to a pure snack-indulgence and in accordance with the rules they’re now taxed!