A VAT tribunal ruling in favour of a wheatgrass juice supplier has indirectly dealt a potentially severe blow to Innocent Drinks.
This week, Tonic Attack won a three-year battle to get its product considered by HM Revenue & Customs as a food, not a drink, so it can now be sold free of VAT.
The company, which was represented by accountancy firm Smith & Williamson, said it had originally been told verbally by HMRC that its product would be classed as a food, but this decision was later reversed in writing.
MD Oliver Dowding challenged the ruling because wheatgrass juice was costly to produce and VAT would force the price so high as to render it commercially unviable.
Delivering its verdict this week, the VAT tribunal said: "It does seem to us there are no characteristics of this product by which it can properly be deemed to be a beverage." It had been swayed by evidence from expert witness Professor Sean Strain, who said wheatgrass juice contained sufficient levels of protein to be considered more as a food than a drink. HMRC can appeal but it is believed this is unlikely.
On the surface, the verdict would appear to offer hope to Innocent's case. Its smoothies are considered a beverage, and as such are subject to 17.5% VAT.
But Innocent believes its products should be exempt on the basis that they are not drunk to quench thirst, hydrate the consumer and give pleasure, the three attributes that define a beverage under tax law.
It is understood to be pressing ahead with a legal case to challenge the VAT status of its smoothies. It is also separately fighting a campaign to get the VAT on healthy drinks such as smoothies and fruit juice reduced to 5%. But its legal challenge looked in tatters after the tribunal said it had found in favour of Tonic Attack because its wheatgrass juice was nothing like a smoothie.
"We were impressed by Professor Strain's evidence in his stressing the importance of the protein content with regard to the distinction to be drawn between Tonic Attack and smoothies or other drinks made from vegetables or fruits," it said.
" Tonic Attack is to be distinguished from such products. While it is in a bottle that is the size of a regular smoothie, its price is considerably more. The appearance of the bottle is far more akin to that of a product that might be found among sauces at a supermarket ."
Dowding, who stopped producing Tonic Attack while fighting the case, said he intended to resume sales of the product, but was not sure how it would be marketed. Before the VAT case, it had been sold exclusively via the internet, but due to the high cost of delivering small volumes he was now considering alternative distribution channels. "It's a fantastic feeling to have won and a victory for common sense," he said.