In addition to the controversial abolishment of the 9% VAT rate for most catering supplies in Budget 2019 and the re-introduction of the 13.5% VAT rate with effect from 1 January 2019, the food sector has also been the subject of an extensive review by Revenue as detailed in their updated guidance notes in December 2018.

Revenue published revised guidance on ‘VAT on food and drink’ as well as new guidance on the ‘VAT treatment of food supplements and certain other substances for human consumption’, both documents were published in the Tax and Duty Manual on 27 December 2018 when many were wondering what to do with the leftover turkey. Although the new guidance on the VAT treatment of food supplements was to be effective from March 2019 Revenue have since confirmed that this will remain unchanged until 1 November 2019.

VAT on food and drink

The revised guidance on VAT on food and drink removes reference to food supplements as a separate more detailed section in the Tax and Duty Manual has been created to deal with same.

Another change sees the removal of references to the Revenue concession on the application of zero-rating to cold food take-away sales, and the conditions to be met to avail of same, which has been in operation for over a decade. Given that the summary table under paragraph 6 of the guidance, as also reflected by the VAT rate database on Revenue website, still applies the zero rate of VAT to cold take-away sales, it implies that going forward zero-rating can be applied to such sales without the need to first make an application for this treatment to the local Revenue district. Revenue is yet to make a comment on this matter, however, conspicuously, the long standing zero-rating practice remains available in relation to cold take-away at present.

In addition to the above, although issued only a few days short of the increased VAT rate of 13.5% coming into effect in catering scenarios, the updated guidance makes no reference to the budget changes in the VAT rate applicable causing some confusion among businesses to whom the changes apply. Despite this, the increased VAT rate is effective and catering businesses (along with vending machine operators) should have adjusted their VAT systems to account for the change in VAT rate effective from 1st January 2019.

VAT treatment of food supplements and certain other substances for human consumption

Irish Revenue’s previous guidance on the VAT treatment of food supplements was issued in November 2011 (eBrief No. 70/11). It indicated that vitamins, minerals and fish oils could generally benefit from the zero rate of VAT with other types of food supplements, apart from certain sports nutrition and slimming products, also potentially being able to avail of the zero-rating should they satisfy certain requirements. The inconclusive nature of the guidance meant a requirement to obtain an opinion/confirmation from Revenue on the correct VAT treatment of various products with different Revenue districts sometimes issuing contradicting VAT rate decisions for products in direct competition. As this issue arose, Revenue commissioned a human nutrition expert to produce a report on the definition of food and related guidance in the context of the VAT Consolidation Act 2010 with a view to providing more clarity. As a result, Revenue has now published more detailed guidance distinguishing between different types of food supplements/other substances for human consumption and clarifying the VAT rate applicable to each under six different headings as follows:

1. Food Supplements – understood as food or dietary supplements, rather than ordinary food by the average consumer.
2. Sports nutrition supplements and similar products – advertised or marketed as products to optimise bulk, performance, recovery or other efficiencies associated with physical or sporting performance.
3. Slimming aids - advertised or marketed as products of bodily sculpture or weight reduction.
4. Liniments, ointments and rubs made from food ingredients.
5. Human oral medicines licenced/authorised by the Health Products Regulatory Authority.
6. Foods for specific vulnerable groups – infant foods, foods for special medical purposes or specially formulated foods to totally replace daily diet.

Products falling under the headings 1 to 4 are not considered by Revenue to be ‘foods’ for VAT purposes, and thus, are subject to the standard rate of VAT. Although heading 5 is not a ‘food’ per se, the authorisation by Health Products Regulatory Authority allows these products to avail of the zero rate of VAT. All products under heading 6 are classified as food by Revenue for VAT purposes, and thus can avail of the zero rate of VAT that applies to the supply of most foodstuffs.

Although the new Revenue guidance is quite comprehensive and provides good structure for assisting in determining the VAT rate applicable to food supplements and other substances for human consumption, it has proven quite controversial. This was due to the fact that the change from zero VAT to 23% was to apply with effect from 1st March 2019 in respect of food supplements (including, vitamins, minerals and fish oils) the majority of which would have qualified for zero-rating in the past. This is likely to result in an increase to the retail sales price as businesses pass this cost to consumers. Due to the detrimental impact this could potentially have on the ‘health store’ business and extensive lobbying the Minister for Finance, Paschal Donohue, in conjunction with Revenue has now amended the implementation date to 1st November 2019.

The statement in the introductory paragraph of the original guidance when issued read;

‘The standard rate of VAT applies to food supplements. However, a Revenue concession allowed the zero rate to be applied to certain types of vitamins, minerals and fish oils. This concession no longer applies from 1 March 2019’

This sparked a debate among the industry and VAT professionals as it assumes that the standard rate of VAT should have applied on sales of all supplements, other than certain vitamins, minerals and fish oils, since establishment of the VAT system in 1972. It implies that the exclusive purpose of the new guidance is to apply the standard rate to the particular three classes of supplements that were specifically zero rated in the past due to the Revenue concession. This change in position impacts the suppliers of these particular products leaving them in a vulnerable position as their supplies are adversely affected at very short notice, and in many cases, with an immediate effect.

As it stands, due to the controversy that the new guidance has caused and the obvious negative consequences on the VAT treatment of both past and future sales. Revenue issued the following statement on 26th February;

“Following growing concerns of industry representative bodies about the difficulties in distinguishing between food supplement products which could be zero rated and those which should be standard rated, Revenue undertook a comprehensive review on the VAT treatment of food supplements. Following the review Revenue issued new guidance in December 2018, applicable from 1 March 2019.

On Monday (25/02/2019), the Minister for Finance wrote to Niall Cody, Chairman of the Revenue Commissioners, outlining that in the course of the Committee Stage debate on the Finance Bill last November he “gave a commitment to address the matter by means of a specific paper to the tax strategy group during the summer period”. At that time Minister Donohoe stated that “Independent of Revenue’s decisions on interpretation, I will put in place a process that will conclude in the TSG papers to examine some of the policy choices that could be available”.

In his letter, Minister Donohoe outlined that “To ensure that this policy review will be effective, I propose to issue a public consultation seeking engagement from all parties on the issue and to consult with my colleague, the Minister for Health, to ascertain his views on the use of food supplements”.

With the postponed implementation date the Minister for Finance plans to examine the policy and legislative options for the taxation of food supplements and to allow time for any legislative changes that the Minister may introduce.

As the Minster is reviewing this issue the industry and indeed individual businesses may now wish to consider making submissions to the Minister, covering both public health benefits and technical VAT arguments, in support of the 0% VAT rate. We can provide technical VAT assistance as required.

If you have any queries or would like our assistance with regards to the above or any Indirect Tax related matter please contact any of the team below or your usual VAT contact.

Please feel free to contact us should you have any queries.

Sandija Veigule
Assistant Manager, Tax and Legal
Office tel : +35314172787
Email : sveigule@deloitte.ie