What’s a drink and what’s a beverage: recent VAT tribunal on turmeric shots offers answers

The Turmeric Co recently won its First Tier Tribunal (FTT) appeal over a disputed £80k VAT bill relating to the VAT rate of its turmeric shots.

The Turmeric Co was launched in 2018 by former professional footballer Thomas Robson-Kanu and his father. Both had used home-made shots containing turmeric to support their health and wellbeing and credited the shots for Mr Robson-Kanu’s longevity as a footballer.

The Turmeric Co argued that its turmeric shots should be classed as a drink – and therefore as a food – and so subject to the zero rate of VAT. HMRC argued that the shots were a beverage.

But what’s the difference between the arguments – between a drink and a beverage? The answer lies in VAT rates.

Some products categorised as a drink (but not a beverage) are subject to the zero rate of VAT. A product categorised as a beverage – which as a general rule is something designed to have some sort of additional layer of enjoyment beyond pure consumption, such as alcohol and fizzy drinks – becomes an “excepted item” and the standard VAT rate of 20% applies.

This is because VAT legislation determines that food is the supply of anything made for human consumption, except a supply in the course of catering and a number of other excepted items. VAT is charged on drinks liable for excise duty, such as spirits, beer and wine and also fruit juices and bottled water. Drinks that aren’t beverages therefore fall under one of the zero-rating categories within the ‘food’ group.

In this case, the FTT relied on the multi-factoral assessment used in The Core (Swindon) Ltd v HMRC (2018) TC 06874 (which was upheld in the Upper Tier Tribunal) to determine whether the shots were beverages or not. The factors considered in such cases include the purpose of the product, how it is marketed and what it is actually used for. Some examples of the tests used in this case were:

  • Was it a drinkable liquid commonly consumed? The parties agreed it was a drinkable liquid and the FTT held it was commonly consumed as there were no restrictions imposed upon it.
  • Was it taken to increase bodily liquid levels? The 60ml shot size and oil and spice ingredients meant it would not be consumed for this purpose as better alternatives were available.
  • Was it consumed to slake thirst? HMRC argued, as with the previous test, that as there was no maximum dosage and the consumption levels were subjective, these tests could be met. The FTT rejected this as because the recommended one to two shots per day, totalling 60 – 120ml, would be unlikely to slake a thirst.
  • Was it consumed to fortify? The FTT upheld previous FTT findings that ‘fortify’ should be construed to mean an immediate, short-term boost. The shots’ own marketing claims were that the benefits take months to be felt, so this test was failed.
  • Was it marketed like other beverages? The Turmeric Co submitted that its subscription method of ordering meant it was unlike other beverages. That – combined with the high price and strict storage requirements – meant there was a distinct market.

Using this assessment, the FTT found that the turmeric shots, which are made from turmeric roots pulped into liquid with crushed watermelon and pineapple juice, are marketed as a daily performance product and sold in 60ml plastic bottles. In defence, the Turmeric Co outlined that the shots had been marketed for prolonged use and purchased by consumers for that reason. On the company’s website the shots are promoted for their purported long-term benefits such as immunity support and health features. The shots were commonly consumed in one go at a regular time rather than savoured and would not be a suitable lunchtime substitute.

The FTT ruled that the turmeric shots indicate a product which might be consumed in place of something which is clearly a beverage. The Tribunal went on to advise that the marketing and customer reviews demonstrate clear consistency in the use to which the shots are put. The FTT agreed with Turmeric Co that the shots are consumed in one go on a regular, long-term basis for the sole purpose of the claimed health and wellbeing benefits and concluded that the purpose of the shots are entirely functional (i.e. to maximise the consumer’s daily ingestion of curcumin, which is achieved by cold-pressing the raw ingredients into a liquid). It was therefore considered to be unlikely that a consumer would attempt to ingest the same quantity of raw turmeric in solid form. For the reasons above it was decided that the shots should properly be zero-rated for VAT purposes as being a drink but not a beverage.

This judgement contributes to the developing case law of VAT on foods and beverages, building on recent decisions from The Core and Morrisons cases. However, the above findings were concluded by the FTT so any taxpayer relying on this case would have to have similar facts, and it’s not clear yet whether HMRC will appeal the decision to a higher Court.

We will monitor the developments of case law in relation to foodstuffs and will provide more updates in the future. If you wish to discuss, require further information on the VAT treatment of foodstuffs, or have any concerns with regards to your own business’ VAT treatment, please get in touch with our indirect tax team at VAT@ct.me, or contact our VAT Director, Iain Masterton, on 0131 558 5800.