Is a sports nutrition tax really the Olympic legacy the coalition are looking for?

By Ben Burrows

In the wake of the controversial introduction of VAT on to sports nutrition supplements MM’s Ben Burrows takes a closer look at its impact in Manchester.

Number 10 Downing Street.

Prime Minister David Cameron is discussing the London 2012 Olympic legacy with IOC President Jacques Rogge.

“The Olympics will revitalise local sport in Britain for generations to come. The legacy of sports in schools, where we have got half the country’s schools taking part in a schools Olympics.

“And the least tangible of all, which is the inspiration people will feel when they see great British athletes, whether rowing in a race, riding on a bicycle or running on the track.

“It’s well-known that this has a transformational effect. You can have any number of Government summits about sport in schools, but the sight of Sir Chris Hoy or someone like that has people in the shops saying ’I want to buy a bicycle, I want to get on my bike’.

“That’s the bit you can’t touch, but it is very, very powerful and I think can bring the country together."

Cut to Chancellor George Osborne’s 2012 Budget statement.

“Over time significant anomalies have developed in the VAT system. These cause very similar products to be taxed very differently.

“For example, at present soft drinks and sports drinks are charged VAT – sports nutrition drinks are not.

“We will address some of the loopholes and anomalies in our VAT system.”

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This ‘Sports Nutrition Tax’ will hit Manchester’s fittest and healthiest and will see them significantly out of pocket.

Mr Osborne’s 2012 Budget statement included the well-disguised move to introduce VAT to a range of sports nutrition supplements.

Sports nutrition supplements such as protein shakes and meal replacement drinks were not subject to VAT as the principle ingredient they use is derived from milk.

Whey, the main ingredient in a wide range of products and supplements, is derived from milk and as such has been exempt from VAT.

Until now.

Mr Osborne described the move as a way to close a tax loophole and bring producers - who had been able to avoid paying tax for many years - back into the tax bracket.

Undoubtedly this will cause a significant rise in costs for manufacturers and distributors, and it seems they will have no choice but to pass this 20% increase on to consumers.

Manchester-based sports nutrition suppliers Myprotein are the leading online sports nutrition company in Europe.

The company, who have featured in the fast track 100, are directly affected by the upcoming tax hike.

A company spokesman said: “Whilst Myprotein recognises the severity of the current financial situation and the need to raise revenue from different avenues, we are not alone when we say this is most certainly the wrong tax, on the wrong sector, at the wrong time.”

The Northwich-based company, who are one of the fastest growing in the UK, greeted Mr Osborne’s decision with disappointment.

“Seeming to contradict the coalition Government’s commitment to improving public health and increasing sports participation rates as London prepares to host the XXX Olympiad, the imposition of such a tax burden on products designed to help consumers improve and maintain good health as well as enhance the performance of Britain’s elite athletes leading up to London 2012 is a wrong and poorly calculated one.”

The sports supplement market is one of the few in the UK that is growing and one in which the UK is a European leader.

Another Manchester-based nutrition supplier, Bodybuilding Warehouse, are extremely disappointed in what they see as the government ‘pulling the carpet from beneath their feet.’

Founder Kieran Fisher told MM: “Many sports supplements are used as staple foods by our customers. For example, I eat six to eight meals per day, and a protein shake is simply more convenient and better value than eating yet more chicken breasts.

“Most people eat biscuits, crisps or other rubbish (that is not taxed) yet they plan to tax protein powder that’s just as much a staple food to thousands, if not millions, of healthy customers throughout the UK.”

Mr Fisher added: “Is taxing healthy lifestyle choices the best way to encourage people to take up exercise?”

Mr Fisher also suggested that BBW and other nutrition suppliers would have no choice but to pass on the increase to consumers.

“Protein drinks, meal replacements and mass gainers are the lowest margin products any sports supplement company sells so we couldn’t absorb the cost.

“They are the most popular products and are therefore priced competitively and so there is very little margin in it for us.

“We would have to add a further 20% onto the price of all those products affected.”

Myprotein and BBW are the fastest growing sports supplement brands in Europe, and were started here in the UK less than 10 years ago.

In a Budget designed around encouraging investment in big business in the UK it seems a perplexing decision to target an industry which is clearly prospering in such tough economic times.

BBW for example grew over 72% last year alone.

It would seem much more appropriate that Mr Osborne applaud these companies rather than introducing further constraints.

And there will be no backdoors for producers in these cases.

Businesses in the city are reportedly delaying bonus payments for employees in order to avoid the higher rates of tax.

But there will be no such loopholes for UK–based nutrition suppliers to exploit.

To add further complexity to an already complicated area, dietary supplements such as SlimFast milkshakes and other weight loss products will continue to be exempt from VAT.

BBW’s founder Kieran Fisher told MM of the significant flaw in this new legislation.

“What's to stop every company in the UK simply selling protein powder ’for slimmers’, or weight lifters and fitness enthusiasts just buying ‘Slimmers Protein’ instead of someone else's differently titled yet identical product?” he said.

The VAT changes will be in force from October of this year.

The Treasury claim the closing of the loophole on sports nutrition drinks will bring in £50 million in tax income over the next five years.

The Treasury consultation document issued alongside the Budget says: “This measure will tax sports nutrition drinks at the standard rate, ensuring that all sports drinks receive the same treatment whether or not they are consumed for nutritional purposes.”

Despite the increase in income for the government, the HMRC will have a much more complicated task under the new regulations.

Mr Osborne’s Budget statement claims that the new measures will simplify the tax system by closing tax loopholes and anomalies.

The Treasury also claim that the changes will lower costs.

The Treasury consultation document states: “This measure will help to reduce the number of disputes and amount of litigation in the area of sports drinks, which will reduce HMRC’s costs.”

However, under the new VAT rules instead of taxing a product based on what it contains the government’s new sports nutrition tax means the product will be taxed based on its use – a far more complex and surely therefore more expensive investigation for the HMRC to undertake.

Diet shakes and protein shakes will be made from the same core ingredients yet one will be subject to VAT and the other not – a strikingly similar debate to the recent pasty tax controversy.

This tax increase for healthy food products is in stark contrast to the usual party line of encouraging a fitter and healthier Britain.

In the same week as the London 2012 Olympic kit designs were unveiled the government choose to target the next generation of sporting achievers.

Myprotein and Bodybuilding Warehouse are encouraging consumers to bulk buy their sports nutrition supplies before the new VAT increase takes effect in October.

For more nutritional advice and for all of your supplement needs visit myprotein.co.uk and bodybuildingwarehouse.co.uk