Retail Indirect Tax Alert: First-Tier Tribunal Ruling on Bottled Science Ltd

Overview

In a notable ruling, the First-tier Tribunal (FTT) recently determined the VAT status of a collagen drink produced by Bottled Science Ltd (BSL), specifically addressing whether the product qualifies as zero-rated ‘food of a kind used for human consumption’.

Case Background

BSL sought to reclaim overpaid VAT on their collagen drink, Skinade, under the premise that it should be zero-rated as food. However, HMRC rejected this claim, maintaining that ‘food’ must be strictly defined for VAT purposes. This case highlights the ongoing challenges in distinguishing between consumable beauty products and food items for VAT classification.

FTT’s Examination

The FTT’s assessment of Skinade considered several factors:

• Ingredients and Nutritional Content: While Skinade contains ingredients typically found in food and provides some nutritional value, the tribunal noted that these were secondary to its primary purpose.
• Marketing and Packaging: The product’s clinical packaging, beauty-centric marketing, and its sale channels further supported HMRC’s view. Skinade is prominently marketed as a beauty drink aimed at improving skin appearance rather than a dietary supplement or food product.
• Primary Purpose: The tribunal concluded that Skinade’s main function is aesthetic enhancement, not sustenance. This was crucial in their decision, as VAT relief on food primarily targets items meant for nourishment.

FTT’s Decision

Based on these observations, the FTT ruled that Skinade does not meet the criteria for zero-rated food. This decision underscores the importance of a product’s primary purpose and market positioning in determining its VAT status.

Comments and Analysis

This ruling is part of a broader trend in VAT litigation that seeks to clarify the boundaries between food, supplements, and other consumable products. The case also exemplifies the complexities businesses face in navigating VAT classifications, especially for products straddling the line between nourishment and other uses.

Legislative Context

Under the Value Added Tax Act 1994, Schedule 8, Group 1, zero-rating applies to food of a kind used for human consumption, with specific exclusions. The case of Bottled Science Ltd underscores the need for businesses to thoroughly understand and align with these legislative nuances to ensure compliance.

Next Steps for Businesses

For companies supplying similar products, this decision has several implications:

• Review Product Classifications: Reassess the VAT status of products that might be similarly positioned between food and other categories.
• Documentation and Marketing: Ensure that marketing strategies and product descriptions accurately reflect the primary purpose of the product, aligning with VAT classifications.
• Consultation and Advice: Consider seeking expert advice to navigate the intricacies of VAT law and to pre-emptively address potential issues with HMRC.

If you are affected by this ruling or have similar concerns, our VAT specialists at Deeks VAT Consultancy are available to provide detailed guidance and support. Contact us to discuss how this decision might impact your business and to explore compliance strategies.

For further details or to schedule a consultation, please reach out to Jane Deeks at jane@deeksvat.co.uk or call 07710 553831