VAT on Milk – Including milkshakes and alternatives

Dairy products are commonly found on the weekly shopping list and are sold by numerous businesses in the UK, ranging from newsagents to major supermarkets. When it comes to supplying these products, it's important to understand when VAT is applicable. This concise guide will provide you with the necessary information.

Please be aware that this blog specifically addresses milk sold for off-premises consumption, including products sold in supermarkets, convenience stores, or delivered for home use. More information on milk and other food/drinks supplied as part of catering can be found in our dedicated “VAT on food” blog.

Is there VAT on milk?

The government regards milk as a basic essential food item and therefore, it is generally not subject to VAT. Businesses selling milk to customers do not have to apply VAT to their sales because the VAT rate is 0%. It's important to clarify that this is different from being exempt.

This applies to all kinds of dairy milk, including milk from cows, goats, and sheep.

Are there exceptions to the zero-rating of milk?

VAT is almost never simple, and milk products are no different. While milk is typically zero-rated, there are exceptions.

• Sports drinks, including milk-based ones, are subject to standard rating for tax purposes. A sports drink is defined as a beverage marketed to enhance physical performance, speed up recovery, or build muscle mass. This category includes pre-mixed protein shakes as well as syrups, concentrates, or powders that can be mixed into a liquid by the consumer.

VAT on milkshakes

Excluding sports drinks, most other drinks considered to be “preparations of milk” are zero-rated. This includes Ovaltine, Horlicks and most milkshakes.

Milkshakes are a little more complex, with two categories to be considered.

• If the product is a flavoured milk-based powder that provides a complete milkshake when mixed with water (such as Nesquik powder), it is zero-rated.
• If it is simply a flavouring, it is typically standard-rated. However, there are several exceptions to this.

A tribunal case by R Twining & Co, relating to the Max for Milk brand of Ovaltine powders, ruled that the strawberry and chocolate-flavoured varieties were zero-rated, while the banana-flavoured variety was standard-rated.

Due to the multiple layers of complexity associated with milkshakes, it is advisable to seek advice if there are queries about VAT treatment.

VAT on baby formula

Baby formula is a milk-based powder that is mixed with water to serve. Baby formula is zero-rated for VAT as a food. This includes pre-mixed baby formula, such as the Aptamil Ready to Drink range.

VAT on alternative milks (soy, oat, almond, etc)

Alternative kinds of milk are becoming increasingly common due to the growing popularity of dairy-free dietary preferences or needs. These products are typically zero-rated as they are deemed necessary replacements to those allergic or intolerant to dairy products. This includes both plain and flavoured varieties of soya, pea, oat, almond, and rice milk.

VAT on milk-based alcoholic beverages

VAT is charged at the standard rate of 20% on all alcoholic beverages, including those which are milk-based. You can learn more about the VAT treatment of alcoholic beverages in our recent blog on the topic.