In 1974, a tax tribunal called up three ladies as witnesses. All had tried, and failed, to make mayonnaise using cod liver oil.
Mrs Patten, one of the three, came closest to success, but found the result unacceptable. As Marfleet Refining Company Ltd v CCE notes:
the odour and overriding flavour spoiled the delicate flavour of salmon
The ladies’ testimony was taken alongside observations about the cod liver oils in question’s marketing and palatability (on which opinions were mixed). The tribunal concluded that such products were not “food of a kind used for human consumption”.
Marfleet Refining Company Ltd v CCE is one of the key cases cited in a recently published tax tribunal judgment, that of Bottled Science Ltd v Revenue & Customs.
Bottle Science is the maker of Skinade: “a multi-award winning, natural peach and mangosteen flavoured anti-ageing collagen drink”, according to its website.
In November 2020, the company filed an error correction notice covering most of the previous four years, claiming it had overpaid £1.25mn in VAT. The basis for the claim was that Skinade should properly have been zero-rated as food. HM Revenue & Customs refused the claim, saying the product should receive standard rating (currently 20 per cent). Eventually, they ended up in court.
The skin we live in
As you’ll no doubt be aware, group 1 of Schedule 8 to the VAT Act contains an exemption to standard rating for “Food of a kind used for human consumption”, a category that includes:
4. Other beverages (including fruit juices and bottled waters) and syrups, concentrates, essences, powders, crystals or other products for the preparation of beverage.
4A. Sports drinks that are advertised or marketed as products designed to enhance physical performance, accelerate recovery after exercise or build bulk, and other similar drinks, including (in either case) syrups, concentrates, essences, powders, crystals or other products for the preparation of such drinks.
The notes say “‘Food’ includes drink”. So far, so simple, although there are a lot of complicated exceptions to this exception.
The reason for zero-rating on many foods, as laid out in a 2018 case concerning Nesquik, is also fairly simple:
Parliament has chosen to zero rate certain foods, generally because they were everyday foods, tax on which would be “particularly sensitive” for much of the population, and has chosen not to zero rate others.”
But naturally, companies want to reduce the amount of tax levied on their products and so — as we wrote about repeatedly earlier this year (FTAV also has a proud history of covering unusual skincare routines) — often get into scraps with HMRC over whether their products deserve to be zero rated.
Pop ya colla
At the Bottled Science Ltd v Revenue & Customs hearing in late January, Judge Mark Baldwin and Julian Stafford (an adviser, who readers may remember from our flapjack coverage) were given “a [Skinade] ‘tasting sample’ bottle, a box of travel sachets and a box containing five 150ml bottles of Skinade”.
The bottle box bumf said:
We believe that better skin comes from within. Skinade is a uniquely formulated drink using advanced technology and high-quality ingredients for your skin. The unique patented formulation of Skinade has been designed to deliver essential nutrients in a liquid formulation promoting high absorption and bioavailability.
Skinade is made from fish collagen protein…
…organic flaxseed oil, vitamins C and B, a sulphur compound called MSM, an amino acid called L-Lysine and grape juice. The panel noted:
from the panel on the box we learn that Skinade provides 1.8% of a woman’s energy needs, 15.3% of her protein requirements, 0.8% of her carbohydrate requirements and 1.5% of her recommended sodium intake. It contains no fat or fibre.
Piers Raper, chief executive and founder of Bottled Science, set out the case for his product being food. He said, the judgment paraphrases, that it was “clear from the outset that Skinade needed to be a great tasting drink”, adding:
To provide the desired nutritional benefits, consumers need to consume Skinade for 90 days, so the drink has to be pleasant and palatable. A drink provides superior absorption of the ingredients and is much easier to consume. Tablets and powders in water were not really options. Initial consumer surveys indicated that the customers were happy with the taste.
Raper said Skinade is marketed and sold as a drink — pointing to web copy, and images of it shown in glasses, or mixed with fruit juices or smoothies.
The judgment notes:
24. Mr Raper disagrees with HMRC’s characterisation of Skinade as a beauty product and not a drink or liquid food. In his view beauty products are applied externally, whereas Skinade is ingested. As he put it, Skinade is all about feeding the skin from within in the best possible way. People don’t eat or drink beauty creams which only work on the surface of the skin.
25. He explained that marine collagen, a key ingredient, when sold on its own in powder form is zero rated. Marine collagen is a food ingredient, just like flour, but just like flour it is difficult to consume and not palatable on its own. Fish collagen protein is hydrolysed from freshwater fish skin in a similar way that chicken, bovine or porcine collagen peptides are produced. These ingredients are regularly found in food products.
His testimony was followed by that of Fred Hollamby-Jones, a consultant whose company Drinkcreate worked with Raper in developing Skinade. Hollamby-Jones — a drinks industry veteran whose career includes stints at Unilever, Lyons Tetley, and Mars — said a drink was the best format for the marine collagen that is Skinade’s key ingredient, explaining that using tablets would be far less efficient.
The taxman countereth
Providing evidence for HMRC was Phil Hillier, who pointed to further Skinade bumf, which said:
Skinade has been developed by leading UK scientists and is designed to provide a perfect ratio of liquid to active ingredients to create one of the most advanced, effective and bio-available anti-ageing skincare products on the market today. Skinade is an alternative approach to your skincare regime — a drink that promotes better looking skin from the inside out.
Hillier also noted the product’s award history — three years in a row of wins at the Natural Health International Beauty Awards, but no food awards — and provided a map of its stockists: “cosmetic clinics, beauty salons, dentists and private medical service providers”.
He also cited a Cosmopolitan review which said it is “apparently best for [Skinade products] to be drunk after breakfast”, and Trustpilot reviews which mentioned “using” or “taking” the product.
Howard Watkinson, a lawyer for HMRC, added sagely that (in the judgment’s wording):
Skinade sounds like First Aid just as much as Lucozade.
He also made more fundamental objections, such as:
The main component of Skinade, hydrolysed marine collagen, is not food because it would be unpalatable. Bearing in mind the contents of the reviews, palatability of the final Skinade product is, at best, neutral.
Significant weight should be given to the manner in which Skinade is held out. Skinade is held out as a skincare and aesthetic beauty product, specifically aimed at women.
The fact that Skinade is liquid does not make it liquid food. Skinade is in liquid form to give it a better absorption rate.
Another objection was raised over our old friend “fiscal neutrality” — the notion that VAT should not distort choice between products that appear similar to consumers.
Mighty healthy
If you’re this far in and haven’t had your coffee yet today, grab it then come back.
There is a rich history of case law on health/beauty products trying to make the leap into taxational foodhood.
To somewhat boil down an extensive section of the judgment (parts of which will be familiar from earlier coverage):
On the philosophy
— in CCE v Ferrero UK Limited, Lord Woolf MR urged tribunals “not to be misled by authorities which are no more than authorities of fact into elevating issues of fact into questions of principle when it is not appropriate to do so on an inquiry such as this”.
— in Procter & Gamble UK v Revenue & Customs Commissioners, Lord Justice Jacob said such queries constitute a “short practical question calling for a short practical answer”.
On the practicalities
— Marfleet Refining Company Ltd v CCE (mentioned earlier) emphasised palatability in the case of cod liver oils.
— GR Soni v CCE, concerning paan — a nut-based mouth freshener — in which the tribunal said it:
could “find no better guide” to the meaning of “food” than The Shorter Oxford English Dictionary”, which gave the primary meaning of “food” as “‘What one takes into the system to maintain life and growth, and to supply waste; aliment, nourishment, victuals.”
— Ayurveda Limited v CCE concerned whether “a herbal fruit concentrate and some herbal tablets were ‘food’”, ultimately ruling that the concentrate (taken off a teaspoon or mixed with warm milk) was and the tablets were not.
— Grosvenor Commodities Limited v CCE found Royal Jelly capsules were not food, with the judge writing:
I do not perceive a pleasant taste, and the qualities are far from food-like; and I regard a subjective belief of the consumer in goodness to be a very minor factor. The capsules do not satisfy hunger or please the palate.
— Devro Ltd v CCE looked at sausage cases and concluded that — although utterly minging (they “did not look, smell or taste like food”) and possessing “minimal” nutritional value — they were food.
— Brewhurst Health Food Supplies v CCE studied Ortisan dried fruit cubes (“Helps to keep you regular”) and found they “were neither sold nor bought as a form of nourishments nor were they consumed for pleasure”.
— Nature’s Balance Limited v CCE looked at whether chlorella pyrenoidosa algae tablets could be zero-rated, with the judge writing:
I believe that an ordinary person would regard chlorella tablets in a similar way to vitamin tablets, no doubt good for you but not themselves food. I have been troubled about the logic that the Commissioners would regard the identical product in its natural form as food, but this follows from the form of the product being a relevant factor. If I am right, it would not be the only product to have a different VAT categorisation in different forms.
— Hunter Ridgeley Limited v CCE asked the same question over whether Aphanizomenon Flos-Aquae in tablet or powdered form could be considered food, noting “It was suggested that certain holy men in India subsisted on the algae and nothing else”. THIS IS INGERLAND, the judge approximately wrote:
Even if the ordinary educated Englishman or broad-minded VAT payer had been instructed as Mr Perry would wish him to be instructed, we do not think that he would accept the Algae as food in the way in which he would accept sausage casings as food. A Californian Court might reach a different conclusion today. A UK Tribunal (not to mention Sainsburys) might reach a different conclusion in 50 or 100 years’ time. Sitting here today, we must apply the natural and ordinary meaning of words as they are used here and now: on that basis, the appeal must fail.
— Dr Xu Hua v CCE found that “bespoke preparations of substances comprised in herbal tea” were not food, because they were sold as treatment. The judge wrote:
That one substance can be a food when supplied in one manifestation but not food when supplied in another is well established.
— Arthro Vite Ltd v CCE concerned a powder made to be mixed with water that, concluding:
We consider this case to be very finely balanced. The factors which weighed most heavily with us were the presentation of the product and its nutritional value and each pointed us in a different direction. However we believe that if we had to choose one single determinative factor it would have to be the nutritional value of the product and on balance therefore we believe the product to be a food. We have to say that had the product not had such a high nutritional value we would probably have come to a different conclusion.
— National Safety Associates of America (UK) Ltd v CCE “dealt with concentrated fruit or vegetable tablets which could be taken to make up for lack of fresh fruit and vegetables in the user’s diet”, and found they were “not food in the normal present-day meaning of the word”.
— The Core (Swindon) Ltd v HMRC caused a stir, with the Upper Tribunal criticising a First-Tier Tax Tribunal that “had allowed the marketing material to predominate in its multi-factorial assessment”.
— Phoenix Foods Ltd v HMRC, which held that bicarbonate of soda could be zero rated as it is typically bought as a food ingredient.
And finally:
— Staatssecretaris van Financiën v X (at the Court of Justice of the European Union) found that sex shop aphrodisiacs should not be counted as food, even if they were ingested via “capsules, drops, powders and sprays”
Synthesising these judgments, the tribunal wrote:
The points we draw from these cases are, first and most importantly, that the test to be applied is “what is the reasonable view on all the facts?” This has been articulated as asking whether a broad-minded VAT payer, who has heard the evidence and tasted the product, would regard Skinade as food. The appeal to the “broad-minded VAT payer” tells us that the question should not be over-analysed or be allowed to get bogged down in technical legal points.
Skin in the game
At this point, we would like readers to lock in their guesses as to what the outcome was here. Think carefully now.
In its discussion section, the judgment notes a possibly overlooked dynamic, emphasised by the Supreme Court in News Corp UK & Ireland Ltd v HMRC — that VAT law is constructed around the idea that standard rating is, well, the standard:
It is well established that zero-rating provisions must be interpreted strictly because they constitute exemptions to the general principle that all supplies of goods and services for consideration by a taxable person should be subject to VAT.
And reflects that, ultimately, these discussions are born from — and get bogged down in — semantics.
There was some debate as to the importance we should place on dictionary definitions of “food”. As Mr Schofield rightly pointed out, some tribunals have taken dictionary definitions into account in reaching their decisions in this area. Mr Watkinson, for his part, referred us to a fascinating (if rather long) article by Stephen Mouritsen entitled “The Dictionary is not a Fortress: Definitional Fallacies and a Corpus-Based Approach to Plain Meaning” in the Brigham Young University Law Review (BYU L Rev 1915 (2010)).
Dictionary definitions are a flawed tool!?
At this point we must unfortunately think briefly of maggots. The judgment says:
We agree with Mr Watkinson that simply using an abstract dictionary definition to inform our approach to the meaning of “food” is not the right approach. The dangers of a narrow, non-contextual approach to statutory interpretation in this area are vividly illustrated by Fluff Ltd (t/a Magit) v CCE, [2001] STC 674, where the question was whether maggots sold as bait for fishing could be zero rated as animal feeding stuffs.
As “Laddie J” (aka Sir Hugh Laddie) wrote in that case:
It seems to me that the meaning of the words must take colour from the context in which they are used and, in particular, what is at issue here is the supply of animal feeding stuffs. It seems to me whether or not an edible substance is animal feeding stuffs is in large part answered by the way in which it is sold or supplied. I put it to Mr Storey that if his approach is right a straw boater, which of course is edible, would itself be animal feeding stuffs and therefore the supply of boaters would be zero rated under this legislation. He accepts that that is the inevitable conclusion of his submission. I do not accept that is the right approach to these words: it is not what the words mean.
Skin conclusion
At the start of their ending, the panel tried to nail down some points:
90. There was some discussion around whether Skinade is a beauty product. We have not found it particularly helpful to try to identify the characteristics of a beauty product. We agree with Mr Schofield that to ask whether Skinade is a beauty product rather than a food is to set up a false dichotomy not to be found in the legislation. The question the legislation asks is whether Skinade is a food, not whether it could, better or additionally, be described as a beauty product.
91. We heard no evidence or argument on cost, although we note from the Skinade website that a 30-day supply (30 x 150ml = 4,500 or 4.5 litres) costs £128. The same quantity of semi-skimmed milk costs around £5.50.
92. Mr Watkinson trailed fiscal neutrality as an issue, but did not develop that avenue of thought. We have put out of our minds any consideration that Skinade may be a substitute for Botox or other standard-rated beauty products.
93. In form, Skinade is a liquid. The legislation tells us that food includes drink, but it does not follow from Skinade being a drink that it is automatically a food.
They added, in a fresh blow to nominative determinism:
94. We do not set a great deal of store by Skinade’s name. Whilst clearly it sounds like certain liquids which are regularly enjoyed, such as lemonade, it does as Mr Watkinson observed also sound rather like first aid. In a macabre way, the name might also suggest a drink with skin as a key ingredient.
On taste, they add, damningly:
We found it to be palatable, in the sense that, if we had to drink 150 ml of it every day, the taste would not put us off. That said, neither of us would rush to drink Skinade for its own sake or, to borrow an expression from the case law in a different area of the VAT legislation, to serve it to an unexpected guest.
After trundling through some of the particulars, they boil it down to the key question: “What would a broad-minded VAT payer, who has heard the evidence and tasted the product, think?”.
Here’s what they decided:
105. We think that such a broad-minded person would conclude that Skinade is a product with some (but it is unclear how much, when compared with foodstuffs generally) nutritional value, which is not consumed in order to keep the body alive or to enable it to function and develop. Rather, it is a product distributed and marketed, in ways which are very different from those one would ordinarily expect of food, for a very particular purpose (helping people keep their skin looking young).
106. The directions for use rather reflect this. Users are told to drink a bottle of Skinade every day “ideally after breakfast”. The instructions are not to consume Skinade as part of a meal. They go on to counsel that, for lasting results, Skinade should be “a part of your daily skincare regime”. None of that, to our mind, is language redolent of food.
107. The answer to the question whether Skinade is a food does not change because it is ingested rather than rubbed into the skin and has some nutritional value. The maggots in Fluff were ingested by the fish, but they were not supplied as foodstuffs for the fish (that is to say, for the purposes of feeding and growing them). The maggots were sold to be used in enticing fish onto hooks. The aphrodisiacs in X had some nutritional value and were ingested, but not (the CJEU appeared to think) for the purpose of keeping the body alive and helping it to function and develop. Similarly, Skinade is sold not for the general purposes of keeping the body alive or its development or functioning, but for the very specific, limited purpose of keeping skin looking young.
108. We have not found this to be an easy issue to resolve at all, but in the round we consider that a well-informed, broad-minded VAT payer’s answer to the question whether Skinade is a food would be “No; Skinade is not a food.”
So, there it is.
We’re sure that Bottled Science is unhappy with this outcome, and doubly sure that they would have preferred to have got through this without having their product repeatedly compared with maggots. But such are the twists and turns of the tax tribunal. They were given 56 days to appeal.
Further reading
— When’s a flapjack not a flapjack? It’s a maddeningly difficult question
