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UK rules chocolate milkshake VAT free but strawberry & banana liable

  • EU VAT
  • 14 February 2018 | Richard Asquith

UK rules chocolate milkshake VAT free but strawberry & banana liable

Today, the UK Upper Tribunal Tax court ruled that Nestlé’s Nesquik chocolate powder milkshake was zero rated for VAT; but strawberry and banana flavor were subject to 20% standard rated VAT.

Nesquik milkshake drink powder is available in three flavours: chocolate; strawberry and banana. The chocolate flavor is based on cocoa butter which is zero rated as a food under the EU VAT Directive rules, including within the UK VAT Act. The other two flavours are powdered drinks and are an ‘excepted item’ under the Directive which must be sold with 20% VAT. Other similar excepted items include: ice lollies, frozen yoghurt, sports drinks, crisps, pet food and most confectionary not wholly or partially covered in cocoa-based chocolate.

Nestlé argued that all their drinks encouraged the consumption of milk. Under the UK VAT Act, milk beverages and preparations are zero rated. Secondly, that Nesquik is merely an addition to an existing zero-rated beverage, milk, as is not in itself a beverage to be judged separately for VAT rating. Curiously, Nestle did not attempt the fiscal neutrality argument and consumer perception test, which would have argued that similar goods should be taxed in the same way.

The ruling will add £0.60 tax to the average tub of £3 Nesquik 500g milkshake powder. The case may cost Nestle at least £4million. Today’s ruling upheld a First Tier Tribunal 2016 decision.

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VP Global Indirect Tax
Richard Asquith
VP Global Indirect Tax Richard Asquith
Richard Asquith is VP Global Indirect Tax at Avalara, helping businesses understand their compliance obligations as they grow globally. He is part of the European leadership team which this year won International Tax Review's Tax Technology Firm of the Year. Richard qualified as an accountant with KPMG in the UK, and went on to work in Hungary, Russia and France with EY.