The VAT classification of food and drink has long been a contentious issue, and legal cases continue to shape HMRC’s approach. In 2024, several cases examined VAT treatment, and this trend is set to continue into 2025. One significant case—Global By Nature Ltd v HMRC (TC09396)—marks the first time a tribunal has examined VAT law concerning sports drinks.
Understanding VAT on Food and Drink
Under VAT legislation, most food and drink items are zero-rated, except for specific products that are taxed at 20%. One of these exceptions includes:
- “Sports drinks that are advertised or marketed as products designed to enhance physical performance, accelerate recovery after exercise, or build bulk.”
- This also applies to powders or syrups used to make such drinks.
HMRC’s Position on Sports Drinks
In the tribunal, HMRC argued that the above legal wording provides a clear definition of sports drinks—i.e., drinks that are advertised or marketed to enhance performance, aid recovery, or build bulk. On this basis, HMRC contended that Global By Nature Ltd’s (GBN) drink powders qualified as sports drinks and should be standard-rated at 20% VAT.
The Tribunal’s Decision
GBN disputed HMRC’s classification, arguing:
- Their powders were not sports drinks.
- Even if they were, they were not advertised or marketed as such.
The Tribunal ruled in favour of GBN, introducing a two-part test to determine if a product falls under the VAT exception:
- Is the product a sports drink?
- If yes, is it marketed as enhancing performance, aiding recovery, or building bulk?
Since ‘sports drink’ is not legally defined, the tribunal relied on dictionary definitions and industry standards. They concluded that GBN’s powders did not contain enough carbohydrates to be classified as sports drinks. As a result, the tribunal zero-rated the product, meaning no VAT applied.
Why This Matters for Businesses
This ruling sets a new precedent for how HMRC determines VAT treatment on food and drink products. Businesses should review their products to ensure they are correctly classified. Key takeaways include:
- If a product is not clearly a sports drink, it may be zero-rated.
- Marketing claims matter—positioning a drink as performance-enhancing could push it into the VAT exception category.
- Future challenges—HMRC may appeal or adjust guidance, so staying updated is essential.
Get Expert VAT Guidance
Navigating VAT classifications can be complex, and getting it wrong could mean unexpected tax liabilities. At A&C Chartered Accountants, we help businesses ensure compliance and optimise tax efficiency. Contact us today for expert VAT advice tailored to your industry.