Zero rating quirks

VAT treatment of flavoured powder added to milk

The taxpayer claimed that Nesquik a milk-flavouring powder should be a zero-rated supply of food under VATA 1994 Sch 8 group 1. HMRC agreed that the chocolate flavour product should be zero rated but not the strawberry or banana flavoured varieties.

The First-tier Tribunal agreed with HMRC so the taxpayer appealed.

After considering the historical tax treatment of food including the purchase tax which preceded VAT the Upper Tribunal said it had clearly been intended that when VAT was introduced ‘milk and preparations and extracts thereof’ should be zero rated. But there was no new intention to zero rate products that were added to milk. Indeed ice cream and frozen yoghurt – which were made of milk – were excluded from zero rating (excepted item 4) as were protein powders (excepted item 4A).