When is a drink not a drink? When HMRC agrees that it’s food

When is a drink not a drink? When HMRC agrees that it’s food

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The manufacturer of a nutritional turmeric shot has won a First Tier Tribunal (FTT) appeal over a disputed £80k VAT bill, agreeing that the product qualified for the zero rate of VAT as a food product and was not a standard-rated beverage.

Readers of our recent VAT blog will be aware of the vast variance and incongruity in the application of VAT. The old cake/biscuit caper continues in assorted guises, and numerous ongoing VAT disputes are pirouetting as we write around whether new or unusual food products are zero-rated.

But recently we had a clear decision about a drink. Or rather, a drink that self-identified as a food.

The decision was worth precisely £80,730 and 52p to the manufacturer of the food/drink – this being the total value of VAT adjustments rejected by HMRC.

“Beverages” like fruit juices, spirits, beer, wine and bottled water are standard rated at 20% – but there are specific exceptions. The rules lead to weird dichotomies, such as Nesquik’s chocolate powder milkshake being zero rated for VAT but drinkers of the strawberry and banana flavours being slapped for the full 20%. And of course, a hot cup of tea is standard rated (because it’s catering) but its composite parts – the tea bags, milk and sugar – can be zero-rated when bought from the supermarket.

So the appellant, The Turmeric Co, argued that its turmeric shots should be classed as food under Group 1 Schedule 8 of the Value Added Tax Act (VATA) 1994 – and thus zero rated. Group 1 Sch 8 VATA says that a food is the supply of anything made for human consumption, except ‘a supply in the course of catering, and any of the excepted items’.

The dispute, therefore, was whether or not the shots were ‘excepted items’.

These turmeric shots, it should be noted, are made from turmeric roots pulped into a liquid, then mixed with crushed watermelon and pineapple juice, and sold in 60ml plastic bottles as a performance product.

Now, HMRC generally takes the view that if a product is a drinkable liquid that is commonly drunk to:

• slake the thirst, or

• increase bodily liquid levels, or

• fortify, or

• give pleasure

…then it’s a beverage. As such, it should be standard rated unless specifically zero-rated.

So then the Great and Good wrangled over whether, for example, a 60ml bottle was enough to slake thirst, whether the shots tasted nice enough to give pleasure, whether anyone would ever offer a shot to a guest, rather than a cup of tea or glass of water, whether one might order a shot instead of a pint of beer or glass of wine to go with a meal and so on.

Fundamentally, HMRC’s clinching argument was that since the shots were drinkable, they were a drink – and thus standard-rated as a beverage.

This apparent slam-dunk rolled around the edge of the basket until the Tribunal agreed with the manufacturer that the liquid form did not necessarily make the product a drink. Customers, it conceded, bought the product for its purported health and wellbeing benefits – the active ingredient of turmeric being curcumin, which is supposed to help with arthritis, anxiety and muscle soreness after exercise, among other things. It was considered unlikely that a consumer would chew on a raw turmeric root after a gym session.

After watching this rhumba go back and forth until both parties were exhausted, the Tribunal Judge, Geraint Williams said: ‘In our view, the marketing and customer reviews demonstrate clear consistency in the use to which the shots are put.

‘The shots are consumed in one go on a regular, long-term basis for the sole purpose of the claimed health and well-being benefits.

‘The purpose of the shots is entirely functional: to maximise the consumer’s daily ingestion of curcumin which is achieved by cold pressing the raw ingredients into a liquid.

‘We consider it highly unlikely that a consumer would attempt to ingest the same quantity of raw turmeric in solid form. For the reasons above we decided that the shots should properly be zero-rated for VAT purposes as being a food but not a beverage.’

HMRC is not seeking leave to appeal on this particular case, but it does have considerable form in challenging zero-rating as can be seen from the permission to appeal they have been granted on another recent “food” case.

In that Tribunal, the supplier, Innovative Bites Ltd, was seeking confirmation on the liability of “Giant Marshmallows”. Here again the Zero rating was confirmed at Tribunal, but HMRC are looking for a “second bite” (sorry) on this case and the hearing at the Upper Tribunal has been listed for the 21 November 2023.

VAT liability questions rage on in the food and drinks sector, so do sign up to receive news as this case progresses.

If you have any questions or are simply looking for VAT advice, get in touch with our VAT advisors below.

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