April 28, 2023
Article
Regular readers will know that food products are the subject of several VAT disputes as to whether new or unusual products are zero-rated. But what about drinks?
“Beverages” such as fruit juices and bottled water are standard rated, with particular exceptions. The rules lead to odd results, for example, Nesquik’s chocolate powder milkshake is zero rated for VAT; but strawberry and banana flavours are subject to 20%.
(Remember that a hot cup of tea is standard rated as catering, even if tea bags, milk and sugar purchased as groceries from the supermarket can be zero-rated.)
Most recently, a manufacturer of turmeric shots has won a case at the First Tier Tax Tribunal. HMRC routinely takes the view that if a product is a drinkable liquid that is commonly consumed; and is characteristically taken to: -
• increase bodily liquid levels; or
• taken to slake the thirst; or
• consumed to fortify; or
• consumed to give pleasure
The product is a beverage and standard rated unless specifically zero-rated. Quite a lot of debate ensued over whether, for example, a 60ml bottle was enough to slake thirst; whether the shots had a pleasant taste; whether anyone would ever offer a shot, as opposed to a cup of tea or glass of water to an unexpected guest; whether anyone would order a shot instead of a beer or glass of wine to accompany a pub lunch; etc.
Ultimately, HMRC was arguing that because the shots were a drinkable liquid, they were standard-rated as a beverage. The Tribunal agreed with the taxpayer that the liquid form was not determinative. Customers bought the product for the claimed health and wellbeing benefits of ingesting the active ingredient of turmeric, curcumin. It was highly unlikely that a consumer would attempt to ingest the same quantity of raw turmeric in solid form.
It is not clear whether HMRC will lodge an Appeal, but it has a long history of challenging zero-rating where a product is on the borderline between a drink and food.