Collagen drinks and VAT: Lessons from the Minerva decision

Mark Ellis, Partner and VAT specialist, examines a recent First-tier Tribunal decision that has provided important guidance on the VAT treatment of collagen drinks, food supplements and other products that sit on the boundary between food, nutrition, health and beauty.

The central lesson is that ingredients and nutritional content cannot be considered in isolation. The way in which a product is described, packaged, presented, promoted, sold and used by customers may ultimately determine its VAT treatment.

He also shares practical steps manufacturers and retailers can take to review product positioning, packaging, marketing and VAT coding, helping them reduce the risk of assessments, penalties and supply-chain disputes.

What was the Minerva case about?

Minerva Research Labs Ltd produced and sold a range of collagen-based liquid products. The products included formulations aimed at supporting the skin, hair, joints and muscles. They were sold in small single-dose bottles, packs of bottles and larger “Superdose” bottles.

In Minerva Research Labs Ltd v Revenue and Customs Commissioners, the Tribunal decided that a range of liquid collagen products was not “food of a kind used for human consumption” for the purposes of UK VAT legislation. The products were therefore subject to VAT at the standard rate rather than the zero rate.

The company had accounted for VAT at the standard rate but subsequently claimed that the products should have been zero-rated as food. Its repayment claim was initially approximately £3.85 million and had reduced to approximately £3.64 million by the time of the appeal. The reduction arose because part of the claim was outside the applicable time limit.

The Tribunal dismissed the appeal because, despite their nutritional value, the collagen drinks were marketed and bought primarily for health and beauty benefits rather than as ordinary food.

How did Tribunal reach its decision

The Tribunal emphasised that VAT classification of this kind requires a multi-factorial assessment. No single feature automatically determines whether a product is food. Nutritious ingredients alone do not make your product zero-rated for VAT. How you market it and how customers use it also matter.

Bottled Science: Why collagen drinks VAT remains worth monitoring

Another collagen drinks business, Bottled Science, has been given permission to take its VAT case to the Upper Tribunal. The outcome could provide useful guidance; however, it won’t automatically settle the VAT rate for your products. Your ingredients, marketing and customer use still need to be assessed individually.

It’s also worth noting that Minerva is a First-tier Tribunal decision and could itself be appealed. Further developments in either case may affect the VAT landscape for collagen drinks and similar products, so the position remains one to watch.

Why the products were standard-rated

Several features of the Minerva products supported the company’s argument that they were food, including its nutritional values which the tribunal accepted. The Tribunal additionally gave some weight to the following matters:

Collagen in the forms of bone broth and gelatine has historically formed part of the human diet.
The products were formulated to be palatable.
They could be consumed directly or mixed with water, juice or smoothies.
They were consistently described as food supplements and were subject to food labelling requirements.

However, the important factor was how the products were marketed. Several aspects of the presentation were also more suggestive of a medicine, treatment or health and beauty product than an ordinary food:

The recommended quantity was typically described as a “dose”.
Some marketing referred to a “treatment”.
The products were described as clinically tested or clinically formulated.
Customers were advised to take them on an empty stomach.
Some were formulated for particular age groups.
All were described as unsuitable for consumers under 18.
The packaging contained precautions and warnings.
Customers who were pregnant, breastfeeding or taking medication were advised to consult a doctor.
Pharmacies were important retail outlets.
The larger bottles resembled containers used for cough mixtures.

Taking all the factors together, the Tribunal found that the characteristics supporting zero-rating were outweighed by those supporting standard-rating.

A “food supplement” is not necessarily food for VAT purposes

One of the most important aspects of the decision is the Tribunal’s treatment of the expression “food supplement”. The products were consistently described as food supplements and were regulated as food.

It explained that food safety and food labelling may deliberately use a broad definition because their objective is to regulate anything intended to be eaten. Businesses should therefore avoid assuming that a product will be zero-rated simply because it:

is legally regulated as food;
complies with food labelling requirements;
is classified as a food supplement;
contains recognised nutrients;
is safe for human consumption;
has a food-related customs classification; or
attracts a reduced VAT rate as food in another country.

These factors are relevant, but none on its own confirms which UK VAT rate applies to your product.

Marketing can be critical to VAT treatment

Marketing cannot artificially convert a product into zero-rated food. A business could not, for example, make a soft drink or confectionery item a meal replacement merely by describing it in that way. There must be evidence that customers genuinely buy and use the product for the stated purpose.

However, the reverse is equally important. Marketing that consistently presents a nutritious product as a beauty treatment, anti-ageing regime, clinical formulation or targeted “dose” may make it more difficult to establish that the product is food.

The same products can also be affected by material developed outside the tax department. The Tribunal considered website content, packaging, labels, influencer posts, customer reviews, advertising, retail outlets and the terminology used to describe consumption.

VAT classification is therefore not only a finance or tax issue. It requires coordination between:

product development;
regulatory and legal teams;
marketing;
packaging design;
e-commerce;
sales;
trade customers;
distributors; and
finance and tax functions.

What does the decision mean for manufacturers?

Manufacturers should consider VAT classification at the product-development stage, rather than after packaging and marketing strategies have been finalised.

Particular attention should be given to:

Product purpose and positioning

Businesses should identify the need the product is intended to meet. Is it designed and presented as nourishment, a meal or snack, a general nutritional product, or as a solution to a specific beauty, ageing, wellness or physiological concern?

A product may contain substantial nutrients but still not be classed as food if those nutrients are the reason the customer bought the product.

Language used on packaging

Terms such as “dose”, “treatment”, “clinically formulated”, “clinically tested”, “age-defying” and “beauty regime” may be commercially valuable. The Minerva decision shows, however, that they may also influence the VAT analysis.

This does not mean that businesses should alter factually accurate or legally required wording merely to obtain a tax advantage. It does mean that VAT consequences should be considered before voluntary marketing terminology is approved.

Evidence of customer use

Evidence of how customers actually buy and use the product may be required. Evidence that customers use a product as a meal, snack or ordinary source of nourishment may support zero-rating. Conversely, evidence showing that it is bought principally for cosmetic or treatment-style benefits may support standard-rating.

Documenting the classification

A VAT classification file should ordinarily record:

formulation and nutritional content;
intended use;
packaging and label wording;
website and advertising materials;
customer research;
sales channels;
retail placement;
comparable products;
relevant case law;
the reasons for the VAT treatment adopted; and
changes made to the product or its presentation over time.

The assessment should be revisited if any of those features changes.

What does the decision mean for wholesalers and distributors?

Wholesalers should not assume that the VAT rate applied by a manufacturer is correct.

If a wholesaler buys a product standard-rated and supplies it as zero-rated, or vice versa, it may create VAT exposure throughout the supply chain. That exposure can affect output tax, input tax recovery, pricing, contractual terms and retrospective claims.

Wholesalers and distributors should obtain sufficient information to understand:

how the manufacturer classifies the product;
the legal and factual basis for that classification;

whether the wholesale description matches the retail proposition;
whether marketing varies between channels;
whether the product is repackaged or rebranded; and
whether its positioning differs between the UK and overseas markets.

Private-label arrangements require particular care. A substantially identical formulation sold under different branding or for a different commercial purpose could, depending on the complete factual circumstances, generate a different VAT analysis.

What does the decision mean for retailers?

Retailers may have their own VAT exposure if they apply an incorrect product tax code.

The Tribunal’s reasoning suggests that retailers should consider more than the product’s ingredients or the VAT rate stated by the supplier. Retail categorisation, website navigation, shelf placement and promotional copy may all contribute to the overall factual picture.

For example, consideration should be given to whether a product is sold:

in a food or grocery section;
with vitamins and supplements;
in a pharmacy section;
with skincare and beauty products;
as part of a meal or snack promotion; or
as a treatment programme or subscription regime.

Retailers with large product catalogues should ensure that borderline products are escalated for review rather than assigned a VAT code solely through automated category mapping.

The importance of reviewing existing VAT treatments

If you operate a business in this sector, you should consider reviewing products that are currently zero-rated, particularly where they are:

marketed for beauty, anti-ageing or cosmetic outcomes;
described using treatment or dosage terminology;
sold primarily through pharmacies, clinics or beauty channels;
subject to prominent medical-style warnings;
age-targeted;
not used as a meal or snack; or
significantly more expensive than ordinary sources of the nutrients they contain.

Businesses should also review standard-rated products where there is strong evidence that they are presented and used as ordinary food, meal replacements or sources of nourishment. The analysis must remain evidence-based and should not be driven solely by the potentially favourable tax outcome.

How we can help

The Minerva decision demonstrates why VAT rate classification cannot safely be determined by looking at a product’s ingredients alone. Packaging, marketing, product positioning, sales channels and evidence of how customers purchase and use a product may all influence the VAT outcome.

Our PKF food products VAT classification review helps manufacturers, wholesalers, importers and retailers assess whether their current VAT treatment is supported by the full factual picture. Our review covers:

existing product ranges and individual SKUs;
supporting evidence, including packaging, marketing materials, customer use and sales channels;
historic VAT exposure and potential repayment opportunities, where appropriate;
VAT coding within ERP and finance systems;
classification governance and approval processes; and
new product launches, reformulations and rebranding exercises.

Whether you are launching a new product, reviewing an established range or responding to a VAT risk identified by HMRC, our specialist VAT team can help you assess the technical position, identify areas of risk and implement a robust VAT classification framework.