The VAT rules on food are now 50 years old and through time they have become frustrating and overly complex, especially when a new food product comes to market that does not fit into the tired restricted definitions.
The recent First-tier Tribunal (FTT) case of Innate-Essence Ltd (t/a The Turmeric Co) v HMRC [2023] UKFTT 371 (TC) (reported in Tax Journal, 28 April 2023) has tested the rules on what is, and what isn’t, a beverage with its supplies of turmeric shots.
So, what is a turmeric shot? It isn’t something that I and potentially many others have come across before. Turmeric shots are shots of pulped turmeric with small amounts of crushed watermelon and lemon with added pineapple juice which form a ‘drink’ that is believed to increase your daily antioxidant intake for enhanced wellness. As a beverage, the sale of the shots would be subject to VAT at the standard rate, but as a food product, this is zero-rated.
To understand the VAT treatment, you must first look at the way VAT law works. VAT law states that supplies in the course of business are subject to VAT at the standard rate unless the supply is listed as either zero-rated, reduced-rated or exempt from VAT. Food for human consumption falls under the zero-rated list. Food includes drinks but there are exceptions, including beverages, which are standard rated. There are exceptions to the exceptions, such as milk, but we can save the milkshake debate for another day.
There is no clear definition of the term beverage in VAT law but HMRC’s guidance refers to a ‘beverage test’ which is based on VAT case law from 30 years ago. There are four parts to the beverage test. The product must be a drinkable liquid that is commonly consumed for one of the following reasons:
characteristically taken to increase bodily liquid levels;
taken to slake the thirst;
consumed to fortify; or
consumed to give pleasure.
The application of these four reasons to turmeric shots was debated at the FTT, as well as the application of the ‘unexpected guest test’, which concerns whether someone would offer an unexpected guest a turmeric shot instead of, say, a glass of water or a cup of tea. It was thought that due to the size and strong taste, a turmeric shot would be unsuitable to be offered as a general drink in a social situation, even if the guest was very health conscious.
The FTT found that the turmeric shots were not consumed for any of the four reasons listed above and hence is not a beverage for VAT purposes. Therefore, the sale of turmeric shots can be zero-rated which is good news for The Turmeric Co as the VAT in question was over £80,000.
HMRC could still appeal this decision and it would be interesting to see on what grounds as I have yet to be offered a ‘refreshing’ turmeric shot and a biscuit when visiting family or friends, but you never know.
Home >Articles > VAT on beverages: the four part test
VAT on beverages: the four part test
The VAT rules on food are now 50 years old and through time they have become frustrating and overly complex, especially when a new food product comes to market that does not fit into the tired restricted definitions.
The recent First-tier Tribunal (FTT) case of Innate-Essence Ltd (t/a The Turmeric Co) v HMRC [2023] UKFTT 371 (TC) (reported in Tax Journal, 28 April 2023) has tested the rules on what is, and what isn’t, a beverage with its supplies of turmeric shots.
So, what is a turmeric shot? It isn’t something that I and potentially many others have come across before. Turmeric shots are shots of pulped turmeric with small amounts of crushed watermelon and lemon with added pineapple juice which form a ‘drink’ that is believed to increase your daily antioxidant intake for enhanced wellness. As a beverage, the sale of the shots would be subject to VAT at the standard rate, but as a food product, this is zero-rated.
To understand the VAT treatment, you must first look at the way VAT law works. VAT law states that supplies in the course of business are subject to VAT at the standard rate unless the supply is listed as either zero-rated, reduced-rated or exempt from VAT. Food for human consumption falls under the zero-rated list. Food includes drinks but there are exceptions, including beverages, which are standard rated. There are exceptions to the exceptions, such as milk, but we can save the milkshake debate for another day.
There is no clear definition of the term beverage in VAT law but HMRC’s guidance refers to a ‘beverage test’ which is based on VAT case law from 30 years ago. There are four parts to the beverage test. The product must be a drinkable liquid that is commonly consumed for one of the following reasons:
characteristically taken to increase bodily liquid levels;
taken to slake the thirst;
consumed to fortify; or
consumed to give pleasure.
The application of these four reasons to turmeric shots was debated at the FTT, as well as the application of the ‘unexpected guest test’, which concerns whether someone would offer an unexpected guest a turmeric shot instead of, say, a glass of water or a cup of tea. It was thought that due to the size and strong taste, a turmeric shot would be unsuitable to be offered as a general drink in a social situation, even if the guest was very health conscious.
The FTT found that the turmeric shots were not consumed for any of the four reasons listed above and hence is not a beverage for VAT purposes. Therefore, the sale of turmeric shots can be zero-rated which is good news for The Turmeric Co as the VAT in question was over £80,000.
HMRC could still appeal this decision and it would be interesting to see on what grounds as I have yet to be offered a ‘refreshing’ turmeric shot and a biscuit when visiting family or friends, but you never know.
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