This week’s Blog concerns a company called Bottled Science Ltd who developed a fish-based drink and marketed the drink as skincare product. However, HMRC (VAT) considered that the taxpayer’s argument that the drink was actually a foodstuff and so should be zero rated was wrong and that it should be standard rated at 20% as a cosmetic product.
As the two sides could not agree, the case went to the first-tier tax tribunal (FTT) for them to adjudicate on which category the drink ‘Skinade’, fell into. The drink is a collagen-rich, skincare drink containing an active ingredient of hydrolysed marine collagen peptides (fish protein, to you and me) and the answer to the question of whether or not it was a food of a kind used for human consumption, was critical as over a million pounds of VAT was at stake.
Arguments made for the defence by Bottled Science
- It is clear that Skinade is a liquid food, as its main ingredient is a concentrated compound of mostly meat and fish and would, if sold on its own, be zero rated.
- It must be a food, as its manufacture is in a facility regulated by the Food Standards Agency and had to be compliant with food safety regulations and labelling rules.
- The drink’s formula includes natural sweeteners and grape juice to make it enjoyable to drink, and as well as being a health drink, it is also wonderful for your skin.
- It contains 15% of a woman’s recommended protein intake and most of the required daily mineral supplements.
- We market Skinade as a health drink beneficial for the skin, with the active ingredient more readily absorbed and delivered in higher concentrations, than in tablets and water-soluble powders.
Counter-arguments made by HMRC
- Skinade is not a food but a skincare product because it is marketed: as an ‘anti-ageing’ collagen drink and not primarily as a food product
- Bottled Science claim the product is one of the most advanced anti-ageing skincare products on the market today, which suggests it is beauty product
- Skinade is sold predominantly by health and beauty suppliers and has won various skin and beauty industry awards. All of which indicated that Skinade is not a food
- The packaging shows directions for consumption, “ideally after breakfast” and as part of a consumer’s “daily skincare regime”. This also suggests it is a beauty product
What did the FTT think?
The FTT chair said that primarily they were being asked to resolve the question: “What is the reasonable view on the basis of the facts?” She went on say that the FTT had reviewed previous VAT decisions on the liability of foods and liquid foods; with the critical objective to weigh up the competing arguments and that they had to decide as to whether Skinade should be consider a beauty product because of how it was marketed, or as it was clearly a nutritional drink, did this move it into the food category?
The FTT chair advised that whilst the arguments for and against were close, ultimately the tribunal had tried to put itself in the place of the “broad-minded VAT-payer”, concluding that the marketing gave the overriding impression that Skinade was not to be consumed as a food, but rather for the specific purpose of keeping the skin looking young.
More beautician, less nutrition
Bottled Science, as part of their argument, had suggested that as the drink’s name was ‘Skinade’, which sounds a lot like Cherryade or Kool Aid, it evokes the image of a drinks brand. The FTT was less certain and suggested that ‘Skinade’ sounded equally like ‘First-aid’, presumably for the skin!
Ultimately, the FTT decided that the marketing of the product, gave the overriding impression that Skinade was not to be consumed as a food, but rather for the specific purpose of keeping the skin looking young and dismissed the Bottled Science Ltd.’s appeal.
Accountant’s view This was a close-run decision and so the FTT gave Bottled Science Ltd leave to appeal to the Upper Tax Tribunal, so I expect we haven’t reached the conclusion of this very fishy tale just yet.
