THG could be in for £30m VAT windfall after legal ruling on protein products

Online retail group THG says it could be making a £30m claim over VAT payments for protein products.

In a trading statement this morning the Manchester headquartered group said it has been following closely a tribunal decision which ruled that protein powder products sold by Sunwarrior should be subject to 0% UK VAT, and accordingly, and the claimant was eligible for a retrospective VAT repayment.

If THG is able to make a successful claim by leveraging the same arguments used in that case, it could trigger a 4-year retrospective repayment claim for two key Myprotein powdered products – Impact Whey Protein and Impact Whey Isolate – which the company estimates to be worth c. £30m.

THG has paid UK VAT against its powdered products in line with market practice and HMRC guidance relating to the VAT treatment of protein powders. 

However, the decision in its current form does not automatically entitle THG to a VAT repayment. An update will be communicated as and when relevant.

The trading update also says the post-demerger business is now “a global, cash generative, health and wellness consumer brands group comprising THG Beauty and THG Nutrition.”

Guidance to the market is that THG will record turnover of £1,942.7m and profits in the expected range of £121.9m – £132.6m.

Looking ahead into 2025 THG says the retail business will deliver “mid-single digit revenue growth in FY 2025, given continued confidence in prestige beauty demand across our key markets, and a return to growth in Nutrition, evidenced by a much-improved start to the year across online and offline channels.”

The trading update is the last one to include figures from Ingenuity, which has been demerged into a private company. Following the business model transformation, Ingenuity is focusing on larger, more profitable enterprise clients, so expectations were upgraded in September and in the final quarter it delivered external revenue growth of 23%.

The selected performance numbers released this morning include THG Beauty revenues up 4.6% to £1,108.3m for FY 2024 (CCY) with broad and consistent gains across skin, cosmetics fragrance categories in the UK.

Matthew Moulding, CEO of THG said: “I’m impressed by the Group’s agility and resilience during a year of significant change for THG, ranging from the demerger of our Ingenuity business, to the sale or discontinuation of some non-core business units, and a major global rebrand of Myprotein in Nutrition.

“Our Beauty business had a standout year, underpinned by strong performances in the UK and US. The continued success of our customer loyalty and reward program, and the opening of our first-ever Lookfantastic physical store, further cement our leadership position in the global Beauty market. These achievements demonstrated significant progress against our strategic priorities and set the stage for an even more remarkable 2025.

“Despite the transitory headwinds, Myprotein achieved several notable successes: entry into the dairy market through the launch of a long-term partnership with Müller; the commencement of a co-manufacturing relationship in Japan, the expansion of our Iceland partnership, and many other licensing and retail listing agreements. We are excited to further deepen our retail expansion strategy internationally in the forthcoming year.”

Russ Mould, investment director at Manchester investment platform, AJ Bell, said: “The fanfare which greeted THG’s arrival on the stock market when it listed in 2020 feels a long time ago.

“There was plenty of excitement about its Ingenuity arm – seen as offering logistics solutions to third parties and compared to the out-of-box solution provided to global supermarkets by Ocado – whose star was very much in the ascendancy at the time.

“Now the Ingenuity arm has been spun off as a private entity, THG is being judged as a collection of beauty, health and nutrition e-commerce sites.

“Despite a fourth quarter drop in revenue these are actually performing OK – with the beauty side doing particularly well.

“There are no guarantees, but if the company can start growing its revenue sustainably then it may, in time, be judged on its own merits and not on the unrealistic yardsticks in place at the time of its IPO.”