Every now and then a tax case comes along that catches the attention not just of fanatics like me but of the wider public; remember the Jaffa Cake question – is it a cake or a biscuit?*
In recent weeks we’ve seen another case which has the potential to join those Jaffa Cakes in the annals of VAT history – the saga of the Nesquik milkshake flavours.
Nestle, the makers of Nesquik, had sought a ruling from the Upper Tribunal that their strawberry and banana milkshake powders should treated the same as their chocolate one. Their chocolate milkshake powder is zero-rated but the other flavours are standard-rated which means that VAT has to be added to their retail price and then handed over to HMRC.
Nestle argued, not unreasonably on the face of it, that all their milkshake powders were essentially the same and also that the powders encouraged the consumption of milk, which is itself a zero-rated product.
The Upper Tribunal agreed with HMRC and a previous decision by the First Tier Tribunal that the current VAT treatment was the correct one on the basis that (bear with me here…)
- Food, which includes drink, is zero-rated.
- There is an exception in the legislation for ‘products for the preparation of beverages’ which should therefore be standard-rated. This would include the strawberry, banana and chocolate flavours.
- There is also an exception to that exception for ‘cocoa and preparations and extracts therefrom’. This includes the chocolate flavour which does contain cocoa and is therefore zero-rated.
Nestle therefore failed in their attempt to recover £4 million overpaid VAT.
All of which goes to show yet again that tax, and especially VAT, is not always straightforward and logical so it pays not to make any assumptions; case history is littered with similar anomalies and decisions which have turned on the most innocuous of circumstances.
If you’d like to know more about the above or have any VAT or other tax issues that you’d like to talk through, please let me know.
*Answer: they are cakes and therefore zero rated for VAT; if they were chocolate covered biscuits they would be standard-rated.
