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Milkshake powder VAT ruling may cause a stir, accountants warn

Local accountancy firm Newby Castleman is highlighting a recent legal ruling against a major confectionary company and its brand of milkshakes and the consequences it could have for similar firms, as well as retailers.

International food and drinks giant Nestlé lost an appeal against the UK First Tier Tribunal (FTT) over the VAT rating of its Nesquik milkshake powders, with the chocolate powder being zero rated for VAT while its other, fruit flavours of the powder, including strawberry and banana, are standard rated. The decision is expected to cost Nestlé £4m in tax.

The case centred around whether or not the different flavours of milkshake powder were essentially the same. The chocolate version of the powder contains cocoa butter, which is zero VAT rated as a food, meaning that the chocolate powder should also be zero rated.

However, because the other versions of the milkshake powder do not contain cocoa butter, the Upper Tribunal upheld the FTT’s original decision that they should be standard rated.

Brent Goodwin, VAT Manager for Newby Castleman, said:

“This peculiar decision to apply VAT to one flavour of milkshake powder and not to another demonstrates the vagaries of VAT. One might think that the chocolate flavour milkshake powder would be more likely to be standard rated than fruit flavours, but this is not that case.

“Other manufacturers of similar products should be aware of this ruling and the potential consequences it might have for their own brands of milkshake powders, as should retailers who stock Nesquik and sell it to customers. When certain products are designated zero-rated for VAT, it is supposed to be for the benefit of consumers.”

Newby Castleman is one of the Midlands’ leading independent accountancy firms, with offices in Leicester and Loughborough. It offers a range of specialist financial services, business and tax advice for individuals and businesses. For further information, telephone the Leicester office on 0116 254 9262, the Loughborough office on 01509 263500 or visit the website at

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