Today I’m looking at the crazy world of VAT and food supplements, where the rules are as convoluted as a contortionist at a yoga retreat. If you are a retailer, manufacturer or you simply love a shaggy dog tale of VAT, then carry on reading.
I’ll kick off with a question, “Do you have the foggiest idea what Maca, Chaga, Spirulina, Rhodiola or Chlorella, are?” No, I thought not, they’re not the latest street food fad or the newest unusual baby names, they are in fact examples of plants that are available in the form of food supplements and which many consumers now incorporate into their diets.
As we now live in a fast-paced world, surrounded by processed foods, which to be honest is often very tasty, but the downside is, that they usually have very little nutritional value. People’s awareness of wellbeing and nutrition is increasing due to better access to information and scientific research and many consumers now add additional nutrients into their diets to try and balance things up.
Pure, White and Deadly
Most governments now accept the significant negative impact unhealthy food have on the health of their populations, especially high levels of refined sugar in products. Health gurus, as well as governments, are increasingly highlighting the foods that are unhealthy and are trying to educate society on the dangers of these foods with the intent of persuading you to reduce or stop eating food that is clearly bad for you.
One of these measures is the sugar tax, also known as the Soft Drinks Industry Levy (SDIL), which was introduced by the last government in 2018. The SDIL imposes a levy of 18p per litre on drinks with a total sugar content above 5g per 100 millilitres and for drinks above 8g per 100 millilitres, it’s 24p per litre.
Another positive from the SDIL being introduced, is that most individuals are now much more aware of the importance of a well-balanced diet and try to boost the amount of nutrients they take. Many choose to eat more fruit or vegetables, whilst others purchase supplements and superfoods, which often come in the form of powders or liquids. It may surprise you that approaching 50% of the adult population of the UK, now consume supplements on a daily basis.
Is it a food or not a food?
The key question to be answered is what exactly are these substances that claim to be superfoods. This is
critical to be able to determine the VAT liability of the various supplements that millions are taking every day. In the UK, food is usually zero rated for VAT purposes, unless it’s supplied in the course of catering.
There are of course products that fall into the general category of food, which are standard rated at 20%, such as confectionery, crisps, savoury snacks, ice cream etcetera. But in which category do food supplements belong?
VAT law does not specifically mention food, dietary or health supplements; however, HMRC guidance says: “Although vitamins and trace elements are an essential part of human nutritional requirements, they are not in themselves food for VAT purposes. Therefore, vitamin and mineral supplements are standard rated, whether they are supplied in pill, capsule, powder or liquid form, with certain exceptions.”
So, is everything crystal Clear? No, I thought not as we still left with a few questions, such as if a food supplement isn’t a food, what exactly is it?
What does case law say?
It’s important to remember that HMRC’s guidance is only an interpretation of law and is not legally binding. The tax tribunals’ judgments can be binding and to clarify the VAT treatment of certain products and some basic principles have been established:
- A dietary supplement is not precluded from being a food merely because it describes itself as a supplement.
- The fact that a substance is therapeutic in nature, or has a remedial quality, it can also be a food.
- It’s clear that food can be sold as a food supplement and at the same time be subject to the VAT rate at 0%. However, each product that claims to be a food supplement needs to be considered on a case-by-case basis to determine whether zero-rating provisions apply.
- If the supplement forms part of a medicated food product and if the main purpose of eating the product is nutrition, it is zero-rated as food, but if the main purpose in consuming it is therapeutic, because of its medicinal ingredient, it will be standard-rated as a medicine.
Accountant’s view
On 24th July HMRC updated its internal manual and issued a notice VFOOD1660 titled ‘VAT Food’. I will quote verbatim: “Food and medicine: The liability of a medicated food depends on whether the main purpose of eating the product is nutrition (in which case it is a zero-rated food), or the therapeutic effects of its medicinal ingredient (when it will be standard-rated as a medicine).”I do not believe that many of you would disagree that most supplements have a therapeutic value to the user (even if it’s only in their head!) but are they medicines? Even if they are classed as medicines, it will make no difference until 31st March 2027 at the earliest. This is because a temporary VAT zero rate is currently in force that applies to all drugs and medicines, including non-prescription medicines that you might obtain from a herbalist.
