UK VAT Ruling: How Marketing Determines VAT Rate for Food Products

Following the appeal submitted by Global by Nature Ltd (GBN), a UK-based company that imports, distributes, and sells organic products in the UK, on the HMRC decision regarding the VAT on food products, the First-Tier Tribunal (FTT) ruled in favor of the GBN.

The ruling is crucial as it elaborates on what can be considered a sports drink and offers an alternative view on determining which product category belongs based on the seller's marketing and advertising approach.

Facts of the Case and FTTs Reasoning

GBN imports and distributes powder vegan food supplements in the UK under the Sunwarrior and Hemple brands. In 2021, Grant Thornton submitted an Error Correction Notification (ECN) on GBN's behalf, stating that they have the right to repayment of the output tax overdeclared between October 1, 2016, and September 30, 2020, totaling GBP 1,246,566.08.

This was stated because certain products, including those sold under the Sunwarrior and Hemple brands, were properly zero-rated as food. The HMRC declined this request, and in 2022, Grant Thornton submitted a revised ECN for only Sunwarrior and Hemple products, setting the revised request at GBP 809,739.

Following the second request, HMRC concluded that Hemple products were zero-rated but held that Sunwarrior products were sports drinks, thus subject to the standard VAT rate. This decision was later upheld on statutory review, which led to GBN appeals before the FTT.

In this case, the FTT analyzed three Sunwarrior products: Classic Protein, Protein Classic Plus, and Protein Warrior Blend. To determine whether these products are sports drinks, the FTT analyzed their contents and how they were marketed and advertised.

Following the elaborate analysis, the FTT determined that GBN’s products contained insufficient carbohydrates and salts. Due to the lack of needed nutrients, the products could not be classified as sports drinks. As an alternative view, the FTT reviewed GBN's marketing approach regarding the presentation of these products. Two products were marketed as nutritious superfoods, while the third was advertised as products enhancing physical performance.

Conclusion

The FTT concluded that two out of three products should be zero-rated, whereas the third, Protein Warrior Blend, falls under the scope of sports drink and, as such, is subject to a standard VAT rate. The main factor that contributed to the third product being considered a sports drink was the advertising and marketing approach and not the content of the product.

This shows that when deciding how to classify certain products, it is essential to take a broader view of all aspects of the products, including how they are marketed and not only the levels of nutrients.

Source: First-Tier Tribunal - Global by Nature Ltd v HMRC