In Nestle UK Limited v HMRC [2018] UKUT 0029, the Upper Tribunal (UT) agreed that although chocolate Nesquik was zero-rated, banana and strawberry Nesquik is standard rated.
Food fit for human consumption, where it is not a supply in the course of catering, is generally zero-rated.
There are a number of excepted items, which are then standard rated, unless those excepted items also appear in the list of items which override those exceptions.
- Beverages, along with products for the preparation of beverages appears in the list of excepted items (standard rated).
- HMRC refused a repayment claim from Nestle for supplies of its strawberry and of its banana Nesquik powder, on the basis that it fell within the beverages exception.
- Nestle appealed to the First-Tier Tribunal (FTT):
- Nesquik is not a product used in the preparation of a beverage. Their view was that milk was not a beverage because it was an override to the beverage exception.
- If milk is a beverage, Nesquik does not make a new beverage, it simply enhances the flavour of the milk, hence it is not used in the preparation of a beverage.
- The FTT dismissed the appeal:
- The milk override does not mean milk is not a beverage, it simply means milk is a beverage that is not caught by the exception.
- To be used in the preparation of a beverage, the sole use of the product needs to be for the preparation of a beverage. It does not matter if the beverage is a new beverage or not.
- Nestle appealed to the UT.
Nestle appealed on the same basis as the appeal to the FTT:
- They also argued that although milk may be a beverage in everyday language, a purposive approach should be taken, and milk is zero rated to encourage children to drink milk. Nesquik helps promote that.
- Nestle also pointed out the anomaly that its chocolate Nesquik is zero-rated and this also suggests that a purposive approach finding that other Nesquik is zero-rated would be appropriate.
The UT dismissed the appeal agreeing with the FTT:
- There was nothing in the 1972 Purchase Tax Act, from which the VAT Act derives, to suggest that milk was zero-rated to encourage children to drink more milk.
- Ice cream, ice lollies and frozen yoghurts are specifically excepted items (i.e. standard rated) and can all be prepared from milk. This clearly suggests that products made from milk are not all supposed to be zero-rated.
- The existence of anomalies is not perfectly logical nor consistent, but it is also not uncommon. It is not a reason to divert from the legislation.
Some of the anomalies:
- Chocolate Nesquik is zero-rated, banana or strawberry are standard rated. This is because the chocolate Nesquik is made from cocoa, which is in the list of overrides to excepted items.
- Fruit salads are zero-rated but smoothies made from those same fruits are standard rated as they are a beverage.
- Oranges are zero-rated but orange juice is standard rated as it is a beverage.
- Potato crisps are specifically standard rated, but vegetable crisps, or crisps whose main ingredient is not potato (Pringles), are zero-rated.
- Chocolate cake is zero-rated but chocolate biscuits are standard rated.
- Frozen yoghurt, is specifically standard rated, but yoghurt which is frozen but is to be eaten above freezing is zero rated.
Not to forget, that all of this is standard rated if it is considered as supplied in the course of catering!
See our flow chart and detailed guide including case law.
Links
External link: Nestle UK Limited v HMRC [2018] UKUT 0029
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