Taxpayers’ money has been spent by the VAT tribunal to come to the perhaps obvious conclusion that Cider is an alcoholic beverage. 

It agreed with HMRC’s contention that it would be absurd to argue anything different.

The argument that Cider is not an alcoholic beverage has been made by JD Wetherspoon.

A sharp-eyed employee of, or advisor to, J D Wetherspoon spotted that the legislation omitted Cider from the definition of an alcoholic beverage in the VAT legislation.  This wouldn’t have changed how VAT was accounted for by the pub chain ordinarily.

However, when Covid hit the UK, the Government at the time decided to introduce a reduced rate of VAT to “supplies in the course of catering of any food or drink for consumption on the premises”.  The aim of this reduced rate was to encourage the restaurant and hospitality sector, which was suffering badly at the time.

However, the relief didn’t apply to supplies of alcoholic beverages.

Due to the omission of Cider from the definition of an alcoholic beverage in the VAT legislation, JD Wetherspoon (whose founder Sir Tim Martin is also a long-time critic of VAT as a tax and how it is applied to the hospitality sector) decided to make a claim for £4.95m of VAT which the pub chain argued was overpaid during the period of time that the reduced rate applied.  Clearly, it was never the intention of the Government that the relief should have enabled such a claim.

The argument, though perhaps opportunistic, was a clever one. However, HMRC rejected the claim, and the case went to the Tribunal. The Tribunal had to concede that the legislation did indeed omit Cider from the definition of an alcoholic beverage (a matter that has since been rectified).

However, the Tribunal found that it could apply the principle in the Inco Europe case, which states that the courts can remedy obvious drafting errors in legislation.

UK businesses can ordinarily use the “letter of the law” to argue for a particular VAT position.  However, this case perhaps shows that where there is an absolutely obvious error in the law, this concept might not apply.

Businesses that sold Cider on their premises whilst the VAT relief applied might seek to put in protective claims in case of an appeal by JD Wetherspoon.  However, there may not be many people in the hospitality sector willing to argue that Cider is not alcoholic and the chance of success of any appeal might be limited.

If you need support in respect of the interpretation of VAT legislation or advice in respect of VAT matters more broadly, please contact our specialist VAT Team.