VAT regulations gone mad we hear you say. A strange case which has just been heard by the Upper Tier Tribunal highlights the complexity, and some might say “absurdity”, of the rules.
Nesquik is a powder which is added to milk to flavour it. It comes in several different varieties, including chocolate, strawberry and banana.
The average man in the street would probably say that they are all similar and would expect the VAT regulations treatment to be the same. Afterall in effect they are the same base ingredients with only the flavouring making them different. Unfortunately, neither the VAT office, nor the tribunal, follow the same logic.
There was no argument that chocolate flavoured Nesquik is zero rated for VAT. HMRC and Nestlé both managed to agreed on that point. The problem started as Nestlé believed that their strawberry and banana flavoured powder was also zero rated because they were, in essence, the same as the chocolate flavoured powder.
The tribunal ruled that the strawberry and banana flavourings were actually standard rated. The cost to Nestle – around £4 million – and why, if you are a user of Nesquik, you might find the chocolate flavoured packets to be slightly cheaper in your local supermarket.
VAT regulations – so what is standard and what’s zero rated?
VAT regulations are complex and contradictory with a huge number of seemingly inconsistent twists and turns. Take the following – crisps made from potatoes are standard rated but crisps made from turnips are zero rated; chocolate cake is zero rated but chocolate biscuits are standard rated; Cadbury’s chocolate buttons are standard rated but chocolate chips for cooking are zero rated.
If Mr Nestlé, a transnational bigwig can’t get it right, what chance does everyone else have?
We can’t guarantee getting it right every time but working with us will definitely be a lot better than guessing.
If you would like to discuss your VAT needs, please contact us – we are always happy to help.