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HMRC internal manual

VAT Food

Excepted items: beverages: law and general

The law

The way in which the law (reproduced in VFOOD0200) is structured means that:

  • beverages are food by virtue of note 1, and would fall within the zero-rating conferred by item 1 of Group 1 if there were no further provisions to remove them;
  • however, both alcoholic and other beverages are removed from the zero-rate by excepted items 3 and 4, and are taxed at the standard-rate; with the exception of
  • specific classes of beverage, described in items overriding the exceptions 4 to 7, which are in turn removed from the excepted items, and are therefore zero-rated.
  • A new excepted item number 4A was introduced with effect from 1 October 2012. This specifically removes Sports drinks from the zero rate.

As with confectionery, the main categories of beverages excluded from the general zero-rating for food were carried over from purchase tax when VAT started; but the law has changed since then to deal with problems created by new products developing after the original law was drafted.

History of excepted items 3 and 4

The first substantive change to excepted items 3 and 4 since 1973 was the removal of the term manufactured before beverages in excepted item 4 with effect from 1st December 1993. This was done by the Value Added Tax (Beverages) Order 1993 (SI 1993/2498) to end uncertainty in the fruit juice trade following contradictory tribunal decisions. At the same time, item number 6 overriding the exceptions was added to remove any potential doubt about the zero-rated status of milk.

The second was the introduction of new excepted item 4A with effect from 1 October 2012. Beverages were already liable to VAT as an excepted item (item 4) to the VAT food zero rate. Many sports drinks are beverages for VAT purposes and are therefore standard rated but the courts have found that some sports drinks are not beverages because of their nutritional content and are therefore zero-rated. The change was introduced to ensure that all sports drinks are taxed in a similar way ensuring that there is consistent treatment of sports drinks whether consumed for rehydration or nutritional purposes.

Definition of beverage

There is no definition of a beverage included in the law, but useful guidance was given by the tribunal in the case of Bioconcepts Ltd (V.11287).

The Bioconcepts case concerned a product called Biolight, which was marketed as a natural detoxifying and slimming food supplement. It is a brown liquid made of plant extracts, and is designed to be taken by sipping throughout the day in small quantities diluted with water to help weight loss, curb hunger pangs and detoxify the system. If drunk by the glassful, it would act as a violent laxative. The Department argued that the product was a drink; and, following the Oxford English Dictionary (OED) definition, this meant it was also a beverage; or alternatively, since it had to be diluted to be drunk, it was a product for the preparation of a beverage.

The tribunal accepted that Biolight contained enough nutritive value to be regarded as a liquid food, but it would not be consumed for pleasure. The OED definition of beverage as drink was not considered to mean all drinkable liquids, but rather those that are commonly consumed: those that are characteristically taken to increase bodily liquid levels, to slake the thirst, to fortify or to give pleasure. Biolight did not fit these criteria and therefore it was not a beverage, but was a zero-rated liquid food.

HMRC have adopted the definition given by the tribunal in this case as a workable general definition of a beverage. The beverages test is in five parts:

  • it must be a drinkable liquid that is commonly consumed; and it must be
  • characteristically taken to increase bodily liquid levels; or
  • taken to slake the thirst; or
  • consumed to fortify; or
  • consumed to give pleasure.

The principle of the test is based around the idea that a drinkable liquid is not automatically a beverage, but could be a liquid food that is not a beverage. Several other court hearings have considered the application of the beverages test and found that it is still a workable test to use when asked whether a drinkable food is a beverage.

  • Alpro Ltd (V.19911): the trader produced a flavoured variety of soya milk, which HMRC considered to be a beverage. The tribunal decided that it was not a beverage, largely because it did not meet the beverage test. However, we disagree with one of the views of this tribunal that dairy milk is not a beverage, our view being supported by the later decision of the tribunal in the case of R Twinings (V.20230).
  • Ocean Grown (V.20562): this case concerned the liability of a small bottle of wheatgrass juice. The Tribunal found in favour of the appellant in deciding that it did not meet the criteria of the beverages test.
  • Unilever Bestfoods UK Ltd (V.20016): the tribunal considered a product called Vie Shots, which was a small concentrated dose of fruit and vegetable pulps. The tribunal decided that it was not a beverage because it did not meet the above test. Important factors were the size of the product and the fact that much of the water content was removed during the manufacturing process.
  • The Kalron Foods ([2007] EWHC 695 (Ch)) case was heard by the High Court and sets a legal precedent on the subject of beverages. The case concerned the liability of freshly blended smoothies. In upholding the tribunal’s decision that it was a beverage and therefore standard-rated, Mr Justice Warren acknowledged that the beverages test was still valid, but he did comment that: It is, however, important to see how that meaning was adopted and applied in the context of the facts of Bioconcepts to understand just why the liquid in that case was not a beverage. I would be surprised if the tribunal had thought that it was laying down an exhaustive definition of what a beverage is rather than listing common characteristics of a beverage not all of which needed to be present in any particular case. I do not consider that the tribunal can be taken to have ruled out other drinks not having any of those characteristics from being considered a beverage.
  • The case of GlaxoSmithKline Services Unlimited (GSK)[2010]UKFTT 418 (TC) considered whether Lucozade Isotonic sports drinks and Lucozade Isotonic Sports Drink Mix were beverages or in the case of the powder a product for the preparation of a beverage or as the appellant argued a functional or liquid food. The Tribunal decided that the products fell within the definition of beverage.
  • Following the introduction of the new excepted item 4A with effect from 1 October 2012 it is no longer necessary to consider whether sports drinks meet with the ‘beverage test’