VAT rules on food and drink have always been a grey area, and 2024 saw several legal cases testing these rules. This trend is continuing into 2025, with a key case focusing on sports drinks.

What’s the issue?

Food and drink (except catering) is usually zero-rated for VAT, but there are exceptions. One of these is sports drinks, which are taxed at 20% VAT if they are:

• Advertised or marketed as improving physical performance, aiding recovery, or building muscle.
• Sold as powders or syrups to make such drinks.

The case: Global By Nature Ltd v HMRC

HMRC claimed that Global By Nature Ltd’s (GBN) drink powders fell into this category because they were marketed as sports drinks and should be standard-rated for VAT.

However, GBN argued:

• Their powders were not sports drinks.
• Even if they were, they weren’t marketed as performance-enhancing.

What did the tribunal decide?

The tribunal set out two key tests for VAT on sports drinks:

1. Is it a sports drink?
2. If yes, is it marketed as improving performance, aiding recovery or building muscle?

Since “sports drink” isn’t clearly defined in law, the tribunal looked at dictionary definitions and industry standards. They found that GBN’s powders didn’t contain enough carbohydrates to qualify as sports drinks. Because they failed the first test, their marketing didn’t need to be considered, and the powders were ruled zero-rated for VAT.

What does this means for businesses?

This case shows that VAT on food and drink remains a complex area, and businesses selling sports drinks or supplements should review their products carefully to check if they meet the criteria for VAT exemptions.