An apparently counterintuitive judgement was handed down last month by the Upper Tier Tribunal as it ruled VAT should be applied to the strawberry and banana flavours of Nesquik milk powder, but not to the chocolate equivalent.
The case arose after Nestlé, the manufacturer of the powders made a repayment claim to HM Revenue & Customs (HMRC), which was refused on the basis that the strawberry and banana powders are standard rated for VAT.
Nestlé appealed this decision but lost, before appealing that judgement at the Upper Tier Tribunal, where the claim was dismissed by Mr Justice Snowden and Judge Charles Hellier last month.
HMRC and Nestlé agreed that the chocolate version should be zero-rated on the basis that it includes cocoa butter, which is zero-rated.
However, while Nestlé held that both strawberry and banana Nesquik should be zero-rated because they encourage the drinking of milk and milk itself is zero-rated for the purposes of VAT, the Tribunal rejected the arguments.
It found that the three powders should not be treated the same for VAT even though they are essentially the same and also that the banana and strawberry versions should not be zero-rated just because they create a new beverage that would itself be zero-rated.
The ruling stated: “it does not seem to us that the anomalies which arise on the basis of the First Tax Tribunal decision require any answer other than that Parliament has chosen to zero-rate certain foods, generally because they were everyday foods, tax on which would be ‘particularly sensitive’ for much of the population, and has chosen not to zero-rate others.”
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