Innocent Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 October 2010 |
| Neutral Citation | [2010] UKFTT 516 (TC) |
| Date | 25 October 2010 |
| Court | First-tier Tribunal (Tax Chamber) |
[2011] TC 00771
[2010] UKFTT 516 (TC)
Barbara Mosedale (Chairman), Richard Law (Member)
Mr R Cordara QC and Mr E Brown, instructed by PWC Legal, for the Appellant
Ms E Mitrophanous, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Zero-rating - Food - Fruit smoothie - Whether food for human consumption or a beverage - The tribunal was asked to consider an appeal against the commissioners' refusal to allow a claim for VAT overpaid by the appellant on the supply of fruit smoothies - The question for the tribunal was whether the appellant's fruit smoothies were relieved of VAT by being food of a kind used for human consumption under Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 8 group 1Sch. 8, Grp. 1 and were not excluded from zero-rating by being a beverage - The appellant contended that the product was a drinkable liquid rather than a beverage and was similar to fruit salad - The smoothie generally contained nothing but fruit - It had the consistency of soup or tomato juice and was sold in 250ml bottles for immediate consumption - The appellant submitted that the smoothie was different from fruit juice in that it contained complex carbohydrates in the form of soluble dietary fibre as opposed to water and simple sugars - Held, that the fruit smoothies were not the same as fruit salad and did not merit the same VAT treatment - The composition was, on average, 50% fruit juice and 50% liquidised fruit salad - In Kalron Foods Ltd v R & C Commrs[2007] BVC 509, liquefaction was found by the High Court to be sufficient to convert a fruit salad into a beverage and the effect was the same in this case - As for the appellant's submission that its smoothies were drinkable liquids rather than beverages, they were not merely drinkable liquids but drinks - It was acknowledged by the tribunal that not all drinks are beverages, but the smoothies in this case displayed some characteristics of a beverage in that a minority of consumers consumed them to quench thirst or principally for pleasure - They might also be offered to guests in a social context as an alternative to beverages such as fruit juice, tea or alcohol - Although the word beverage was not commonly used in everyday language, the tribunal considered that it would not be regarded as unusual to see the smoothie on a list of beverages, because it was consumed as a drink, it was intended as a drink, it was sold as a drink and it was very pleasant to drink - The fact that a fruit smoothie was also a food did not remove it from the category of beverage - It was not, therefore, eligible for zero-rating within General item 1 of the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 8 group 1Sch 8, Grp. 1 - Appeal dismissed.
1. The Appellant appeals against a decision of HMRC contained in their letter dated 26 April 2007 that the pure fruit smoothies produced by the Appellant for VAT purposes fell to be standard rated for VAT purposes as beverages under excepted item 4 of Value Added Tax Act 1994 schedule 8 group 1Group 1 of Schedule 8 of the Value Added Tax Act 1994 ("VATA").
2. HMRC's decision was prompted by a voluntary disclosure made by Innocent on 12 April 2007 seeking to recover VAT accounted for on sales of their fruit smoothies. In the normal course of its business, Innocent changes the recipes it uses and also discontinues some smoothies and introduces new ones. It also has a guest smoothie in production for 3 months at a time. It was therefore only able to produce at the hearing samples of the smoothies in current production and our physical consideration of Innocent's product necessarily had to be limited to these.
3. Both parties were happy that our Decision would treat the current smoothies as representative of Innocent's fruit smoothies which were the subject of the original voluntary disclosure. There is no suggestion that Innocent's existing range is materially different to the range in production for the periods covered by the original voluntary disclosure.
4. The range at the time of the hearing comprised 8 smoothies including 1 guest smoothie. The ingredients for these smoothies are set out below in paragraph 92.
5. Innocent also produce yoghurt-based smoothies (sometimes referred to as thickies) but these were not part of the voluntary disclosure and are not part of the appeal as HMRC accept that they are zero rated as a preparation of milk (item 6 of the items overriding the exceptions in Group 1 of Schedule 8 as set out in paragraph 7 below).
6. Innocent's voluntary disclosure included a claim for the VAT accounted for on their range of children's smoothies. At the hearing Innocent made it clear that they did not wish us to consider the children's smoothies although they were part of the original voluntary disclosure. Innocent now accept that their children's smoothies are properly standard rated.
7. The legislation with which this case is concerned is short. It is contained in Value Added Tax Act 1994 schedule 8 group 1Group 1 of Schedule 8 VATA. It is the food group. It sets out what is to be zero rated as a food and says in so far as relevant to this appeal:
The supply of anything comprised in the general items set out below, except-
(a) ....
(b) a supply of anything comprised in any of the excepted items set out below, unless it is also comprised in any of the items overriding the exceptions set out below which relates to that excepted item.
Item No
(2) Food of a kind used for human consumption.
(3) Animal feeding stuffs.
(4) Seeds or other means of propagation of plants comprised in item 1 or 2.
(5) Live animals of a kind generally used as, or yielding or producing, food for human consumption.
Excepted items
(2) Ice cream, ice lollies, frozen yoghurt, water ices and similar frozen products, and prepared mixes and powders for making such products.
(3) Confectionary, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance.
(4) Beverages chargeable with any duty of excise specifically charged on spirits, beer, wine or made-wine and preparations thereof.
(5) Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverages.
(6) Any of the following when packaged for human consumption without further preparation, namely, potato crisps, potato sticks, potato puffs, and similar products made from the potato, or from potato flour, or from potato starch, and savoury food products obtained by the swelling of cereals or cereal products; and salted or roasted nuts other than nuts in shell....
Items overriding the exceptions
(2) Yoghurt unsuitable for immediate consumption when frozen.
(3) Drained cherries.
(4) Candied peels.
(5) Tea, maté, herbal teas and similar products, and preparations and extracts thereof.
(6) Cocoa, coffee and chicory and other roasted coffee substitutes, and preparations and extracts thereof.
(7) Milk and preparations and extracts thereof.
(8) Preparations and extracts of meat, yeast or egg.
NOTES
(2) "Food" includes drink.
(3) …
(4) …
(5) Item 1 of the items overriding the exceptions relates to item 1 of the excepted items.
(6) Items 2 and 3 of the items overriding the exceptions relate to item 2 of the excepted items; and for the purposes of item 2 of the excepted items "confectionary" includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers.
(7) Items 4 to 6 of the items overriding the exceptions relate to item 4 of the excepted items.
(8) …
8. The scheme of this legislation is that food is zero rated. Food includes drink (see note (1)). Excepted items, however, are not zero rated despite being food. An excepted item is a beverage (see Excepted item 4).
9. It was accepted by both parties that all beverages are food: indeed unless they are food they could not be within the zero rating of Group 1. So the question for this Tribunal is not whether fruit smoothies are food: all parties accept that they are and we agree. Both parties were also agreed that the smoothies are a drink in the sense that they are intended to be drunk. The question for the Tribunal is whether the smoothies are a beverage. The Appellant's case is that fruit smoothies are merely a liquid food and not a beverage: HMRC considers them to be a beverage.
10. Various items override the exceptions but it was not suggested that a fruit smoothie fell into any of the relevant overrides. The relevant overrides are items 4 to 6 which include tea, maté, herbal tea, cocoa, coffee chicory and similar items, and milk and preparations of milk.
11. The lawfulness of the UK's zero rating provisions were not in issue (as we would expect bearing in mind that one party was HMRC and the other was seeking to rely on zero rating). Mr Cordara suggested however that the EU provision which permits the UK to zero rate requires our legislation to have a social policy and that we should therefore find a social policy in Group 1 and interpret the meaning of "beverage" accordingly.
12. There are really two questions here. Is "beverage" to be interpreted according to social policy and if so, what is that social policy?
13. The Principal VAT Directive 2006/112/EC at eu-directive 2006/112 article 110Article 110 provides, as did eu-directive 77/388 subsec-or-para 2 article 28Article 28(2)(a) of the Sixth VAT Directive before it, that:
Member States which, at 1 January 1991, were granting exemptions with deductibility of the VAT paid at the preceding stage or applying reduced rates lower than the minimum laid down in Article 99 may continue to grant those exemptions or apply those reduced...
To continue reading
Request your trial
-
Nestle UK Ltd
...BVC 408, R & C Commrs v Procter & Gamble UK VAT[2009] BVC 461, Kalron Foods Ltd v R & C Commrs VAT[2007] BVC 509 and Innocent Ltd TAX[2011] TC 00771.[56] HMRC argue that the meaning of the term “beverages” is relevant as set out in cases such as Chi Drinks Ltd TAX[2013] TC 02512 and GlaxoSm......
-
GlaxoSmithKline Services Unlimited v R & C Commissioners
...[1995] BVC 545 C & E Commrs v Ferrero UK Ltd VAT[1997] BVC 408 Edwards v Bairstow ELRTAX[1956] AC 14; 36 TC 207 Innocent Ltd TAX[2010] UKFTT 516 (TC); [2011] TC 00771 Kalron Foods Ltd v R & C Commrs VAT[2007] BVC 509 R & C Commrs v Procter & Gamble UK VAT[2009] BVC 461 R & C Commrs v Rank G......
-
Innocent Ltd
...whether the appellant's fruit smoothies were zero-rated, in favour of the commissioners and had awarded costs against the appellant (see [2011] TC 00771) - The jurisdiction of the tribunal to direct the costs regime applicable to the old tribunal rules arose under para. 7(3) of the Transfer......
-
Core (Swindon) Ltd
...& Gamble UK [2009] BVC 461 Kinnerton Confectionery Ltd [2018] TC 06548 Bioconcepts Ltd v HMRC [1993] Lexis Citation 1149 Innocent Ltd [2011] TC 00771 Kalron Foods Ltd v R & C Commrs [2007] BVC 509 C & E Commrs v Ferrero UK Ltd [1997] BVC 408 Alpro Ltd [2007] BVC 4,049 Unilever Bestfoods UK ......