The British Soft Drinks Association (BSDA) has slammed the UK's VAT regime for food and drink as "archaic", "barking mad", and at odds with the government's public health agenda.
The attack came after Unilever successfully persuaded a VAT tribunal that its Vie Shots fruit and veg mini drinks should not be subject to VAT. The BSDA said it was now exploring whether the ruling set a broader precedent for the recategorisation of fruit-based smoothies as foods, which are zero-rated, rather than beverages which are standard-rated.
The categorisation system that underpinned VAT was old fashioned and outmoded, said BSDA spokesman Richard Laming. "The whole system is barking mad. However, this ruling offers hope that positive changes can be made by changing how the rules are interpreted."
He continued: "There is no legal definition of smoothies. It is plainly wrong that there should be tax discrimination against products that count towards the five-a-day target for fruit and vegetables. So much for joined up government."
The Treasury could reduce VAT on juices and smoothies from 17.5% to 5% without having to gain EU approval, said Laming.
A spokesman for HM Revenue & Customs insisted that the Unilever ruling did not necessarily mean that smoothies would avoid tax. "Every product must be considered on its own merits. If a smoothie manufacturer wants to challenge a VAT ruling on particular products at a tribunal, it will have to do so separately. Different smoothie-style products might all have different ratings depending on their precise ingredients and preparation methods."
He added: "There is a lot of lobbying on this from the food industry, but the rules are not based on health, but on the level of preparation involved in the product."
Companies such as Innocent Drinks have long argued that it is a nonsense that smoothies are subject to VAT given that their raw ingredients are zero-rated for VAT purposes and the government is actively trying to boost fruit and vegetable consumption.
The VAT tribunal concluded that the fibrous quality of Vie Shots and their filling texture suggested that their primary purpose was not slaking thirst, and therefore they should be seen as foods rather than beverages.
One VAT expert said: "The current system is a complete mess, with VAT on cakes but not biscuits, on compressed fruit bars, but not on chocolate éclairs, and so on."
More than 50 MPs have signed an Early Day Motion calling on the government to reduce VAT on fresh fruit juice from 17.5% to 5%.