In Bottled Science Limited v HMRC [2024] TC09231, the First Tier Tribunal found that the collagen drink product 'Skinade' was not food for VAT purposes and therefore could not be zero-rated.
Bottled Science Limited developed a beauty food product, Skinade, containing marine collagen with flavourings and preservatives to mask the taste. The company had opted for a drink in preference to a tablet and it was felt it would be a more palatable product as a drink.
- In November 2020, Bottled Science submitted an Error correction notice for overdeclared output tax of £1,250,846 on the basis that Skinade should have been zero-rated for VAT purposes because it was 'food'. HMRC refused the claim.
- In November 2021, Bottled Science requested a Statutory Review of HMRC's decision.
- In April 2022, HMRC notified Bottled Science that the Statutory Review had upheld HMRC's decision to treat Skinade as standard-rated. Bottled Science Appealed to the First Tier Tribunal (FTT).
The FTT had to determine whether Bottled Science's collagen drink product was a 'Food of a kind used for human consumption' and therefore Zero-rated within Item 1, Group 1, Schedule 9 VATA 1994
- Samples of the product were provided at the appeal hearing.
- Marketing material from the company described the product's collagen ingredients as providing better care than skin creams. Skinade had won industry awards.
- The company disagreed with HMRC's characterisation of Skinade as a beauty product and not a drink or liquid food on the basis that beauty products are applied externally.
- To counter those arguments, HMRC pointed out that the awards and stockists of the product are mostly cosmetic clinics, beauty salons, dentists and private medical service providers focused on skincare and beauty.
The FTT considered it unnecessary to get bogged down in specific ingredients or technical legal points. It considered that the zero-rating provisions had to be construed strictly.
- The key question was whether the product was a food. It was not helpful to consider if Skinade was better described as a beauty product.
- Skinade was a liquid. While the VAT definition of food includes a drink, it did not follow that a drink is automatically also a food. Whilst palatable, the FTT did not feel it would be served to an 'unexpected guest'.
- The FTT found the most significant factors were packaging and marketing. The product's overall appearance was more like something found in a chemist's shop than a grocer's. It was not available in places where foodstuffs were generally sold and was marketed as something that should be "a part of your daily skincare regime".
- Taken in the round, the FTT found that Skinade was not a food.
The appeal was dismissed.
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