Upper Tribunal remits VAT zero-rating dispute over collagen drink

The Tribunal did not award zero-rating

The dispute concerns whether Skinade is zero-rated as “food of a kind used for human consumption” under Item 1, Group 1, Schedule 8 to the Value Added Tax Act 1994. The Upper Tribunal set aside the earlier decision and remitted the case to a differently constituted First-tier Tribunal. It did not decide that Skinade is zero-rated, so the product’s final classification remains unresolved.^[1][2]

“Food includes drink” is consequential

Note 1 to Group 1 states that food includes drink. Applying the Court of Appeal’s reasoning in Innovative Bites, the Upper Tribunal held that a product found to be a drink of a kind used for human consumption is food for this purpose, absent absurdity. The earlier Tribunal had erred by treating the inclusive definition as non-conclusive. The new Tribunal must first decide, on the evidence, whether Skinade is a drink.^[2]

Other grounds did not succeed

The Upper Tribunal dismissed the company’s other grounds and found no legal error in the earlier treatment of marketing, packaging or nutritional value. The case arose from an error-correction claim for more than £1.25 million of output tax for periods from December 2016 to September 2020. That history illustrates the financial significance of classification, but does not establish the treatment of other functional beverages.^[2]

Other businesses should monitor the remittal

There is no general filing deadline or VAT-rate change from the judgment. Businesses selling collagen or other functional drinks should apply the statutory test to their own product characteristics and evidence, rather than infer zero-rating because a product is liquid or marketed as a drink. The judgment changes the analytical route and sends one taxpayer’s case back for findings of fact; it is not a blanket product ruling. Reopen when the remitted First-tier Tribunal issues its decision or a higher court changes the test.^[1][2]