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Nestle: the delights of VAT zero-rating

Although the Upper Tribunal’s (UT’s) judgment in Nestle [2018] UKUT 29 concerns the VAT treatment of milk flavouring powders (Nesquik) the interpretation of VATA 1994 Sch 8 Group 1 will be of wider application. Anything concerning Nesquik is perhaps no great issue and would only interest readers who have young children. However the importance of the case is the general application of the zero-rate of VAT and the oddities and anomalies that this area of legislation gives rise to.

By way of background it was accepted by HMRC that chocolate Nesquik is zero-rated because it contains cocoa which falls within Group 1 under ‘items overriding the exceptions’. However HMRC did not accept that zero-rating applied to strawberry and banana Nesquik.

HMRC was successful at the First-tier Tribunal (FTT). On appeal Nestle put forward two arguments:

  • milk does not constitute a ‘beverage’ for VAT...

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