Factual and Procedural Background
The Appellant, Company A, submitted an error correction notice on 17 November 2020 claiming overdeclared output tax of £1,250,840.06 for VAT periods 12/16 to 09/20 on the basis that their collagen drink product, "Skinade," should be zero-rated as a food under Item 1, Group 1, Schedule 8 of the Value Added Tax Act 1994 ("VATA"). The Respondents, The Commissioners for His Majesty's Revenue and Customs ("HMRC"), refused the claim on 6 May 2021, treating Skinade as standard rated. Following a statutory review request by Company A on 4 November 2021, HMRC upheld their original decision on 1 April 2023. Company A then filed a Notice of Appeal on 27 April 2022 against HMRC's decision as upheld on review. The Tribunal heard the appeal on 29 and 30 January 2024 and delivered judgment on 4 July 2024.
Legal Issues Presented
- Whether the Appellant's collagen drink product "Skinade" qualifies as "food of a kind used for human consumption" under Item 1, Group 1, Schedule 8 to the Value Added Tax Act 1994, thereby qualifying for zero-rating of VAT.
Arguments of the Parties
Appellant's Arguments
- "Food" includes drinks and liquid foods, and Skinade is clearly described and marketed as a drink.
- Skinade contains ingredients that are food or commonly used in food, including hydrolysed marine collagen peptides, which have nutritional value.
- The product provides measurable nutritional content, including proteins, carbohydrates, vitamins, and minerals, which support its classification as food.
- The packaging and labelling use language typical of food products, including nutritional information and directions for consumption.
- Skinade is consumed by drinking a liquid, not in tablet form, and has been developed to be palatable and easy to consume daily.
- Customer reviews support that Skinade is consumed as a drink and appreciated for its taste.
- Marketing presents Skinade as a drink with nutritional benefits, and it is manufactured in a food processing facility compliant with food safety regulations.
- The Appellant rejects HMRC's classification of Skinade as a beauty product, emphasizing that it is ingested and feeds the skin from within.
- Food supplements are not a distinct category excluding them from being food.
Respondents' Arguments
- The term "food" should be strictly interpreted as an exception to the general VAT principle, and Skinade does not fall within this exception.
- Skinade is intended to produce aesthetic beauty effects rather than to provide nutrition necessary to keep the body alive or functioning.
- Applying the principle of fiscal neutrality, zero-rating Skinade could lead to arguments for zero-rating other aesthetic treatments, distorting competition.
- The hydrolysed marine collagen in Skinade is not necessary to keep the body alive or functioning and is consumed for aesthetic purposes.
- Skinade is marketed and sold predominantly as a skincare and beauty product, not as food, with packaging and distribution channels reflecting this.
- Palatability is neutral or negative; the product is not marketed for nutritional content but for skin benefits.
- Packaging and directions for use resemble those of beauty products, including warnings and recommended daily doses as part of a skincare regime.
- Customer reviews and awards relate to beauty rather than food, and the product is mainly sold through aesthetic clinics rather than food retailers.
- Skinade’s liquid form is to improve absorption, not to classify it as liquid food.
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| CCE v Ferrero UK Limited [1997] STC 881 |
Classification involves a question of fact and degree; avoid over-elaborate analysis. |
The Tribunal applied a practical overall assessment without dissecting every characteristic in detail. |
| Procter & Gamble UK v Revenue and Customs Commissioners [2009] EWCA Civ 407 |
Classification is a practical question; the reasonable view on all facts is decisive. |
The Tribunal used a broad-minded VAT payer test considering all relevant factors. |
| Phoenix Foods Ltd v HMRC [2018] UKFTT 18 (TC) |
Classification may depend on intended use and packaging; multi-factorial assessment required. |
The Tribunal considered intended use and packaging as part of the overall facts. |
| Marfleet Refining Company Ltd v CCE [1974] VATTR 289 |
Food is to be understood in its ordinary meaning, considering palatability and marketing. |
Used to assess whether cod liver oil products were food; emphasis on ordinary meaning. |
| GR Soni v CCE [1980] VATTR 9 |
Food includes items consumed as part of a meal with nutritional value. |
Held paan to be food based on its consumption and nutritional value. |
| Ayurveda Limited v CCE (VAT Decision 3860) |
Food classification depends on ordinary usage and form of product. |
Herbal fruit concentrate was food; tablets were not. |
| Grosvenor Commodities Limited v CCE (VAT Decision 7221) |
Capsules that do not satisfy hunger or please palate are not food. |
Royal Jelly capsules held not to be food. |
| Devro Ltd v CCE (VAT Decision 7570) |
Edible products used as part of another food can be classified as food. |
Sausage casings made from collagen were food despite minimal nutritional value. |
| Brewhurst Health Food Supplies v CCE (VAT Decision 8928) |
Products sold primarily for remedial purposes may not be food despite palatability. |
Ortisan fruit cubes held not to be food due to intended use. |
| Nature's Balance Limited v CCE (VAT Decision 12295) |
Tablets with nutritional value may not be food if form and marketing do not support it. |
Chlorella tablets not regarded as food despite nutritional content. |
| Hunter Ridgeley Limited v CCE (VAT Decision 13662) |
Algae products not food despite nutritional value and ingestion. |
Held not food based on ordinary meaning and marketing. |
| Dr Xu Hua v CCE (VAT Decision 13811) |
Substances sold for medicinal purposes may lose food classification. |
Bespoke herbal preparations held not food due to manner of supply and purpose. |
| Arthro Vite Ltd v CCE (VAT Decision 14836) |
High nutritional value can be decisive in classifying a product as food. |
Powder with collagen hydrolysate held to be food based on nutritional value. |
| National Safety Associates of America (UK) Ltd v CCE (VAT Decision 14241) |
Tablets with nutritional value but marketed as supplements may not be food. |
Concentrated fruit/vegetable tablets held not to be food. |
| The Core (Swindon) Ltd v HMRC [2020] UKUT 301 (TCC) |
Marketing and intended use are relevant factors in classification. |
Upheld multi-factorial approach including marketing and packaging. |
| Staatssecretaris van Financiën v X (CJEU Case C-331/19) |
Products with nutrients necessary to keep the body alive are foodstuffs regardless of health benefits or social context. |
CJEU clarified that nutritional role is decisive for classification as foodstuff. |
| News Corp UK & Ireland Ltd v HMRC [2023] UKSC 7 |
Zero-rating provisions must be interpreted strictly as exceptions to VAT. |
Guided strict interpretation of zero-rating provisions applied in this case. |
| Rank Group Plc v Revenue and Customs Commissioners (Joined Cases C-259/10 and C-260/10) |
Principle of fiscal neutrality to avoid distortion of competition. |
Considered in arguments regarding classification of Skinade. |
Court's Reasoning and Analysis
The Tribunal acknowledged the need for a strict interpretation of zero-rating provisions as exceptions to general VAT rules, consistent with Supreme Court guidance. The legal test applied was whether a broad-minded VAT payer, informed by all the facts and having tasted the product, would regard Skinade as "food of a kind used for human consumption." The Tribunal considered multiple factors including the product's form (liquid drink), ingredients (all food or food ingredients), nutritional content (providing some protein and vitamins but relatively low overall nutritional value), palatability (palatable but not highly desirable), packaging, labelling, marketing, distribution channels, and intended use.
While the product is described as a drink and contains nutritional elements, the Tribunal found that its primary purpose is aesthetic—promoting better skin appearance rather than sustaining life or bodily function. The product is marketed and sold predominantly through aesthetic and beauty channels, with packaging and directions resembling those of skincare products rather than typical foodstuffs. The Tribunal noted that the nutritional value, although present, was neutral in the overall assessment and that the product is not consumed as part of a meal or for general nourishment.
The Tribunal also considered relevant case law emphasizing practical and overall assessments rather than overly technical analysis. It found persuasive the distinction drawn by the CJEU in X that products with nutrients necessary to keep the body alive are food, whereas those serving only other purposes are not. The Tribunal rejected the Appellant's argument that the presence of nutritional value alone suffices for food classification, noting that the level and purpose of nutrition matter.
Ultimately, the Tribunal concluded that a reasonable, broad-minded VAT payer would not regard Skinade as food given its specific marketing, packaging, intended use, and modest nutritional contribution. The Tribunal also rejected the notion that the product's ingestion alone is determinative of food status.
Holding and Implications
The Tribunal held that Skinade is not a "food of a kind used for human consumption" within Item 1, Group 1, Schedule 8 of the Value Added Tax Act 1994 and therefore does not qualify for zero-rating of VAT.
The appeal by Company A is DISMISSED. The direct effect is that Skinade remains subject to standard VAT rates. The decision does not establish new precedent beyond applying existing principles and case law to the specific facts of this product's classification.