A food company has won a sweet-tasting victory against the UK tax authorities after a court decided that it did not have to pay VAT on its marshmallows because they were not confectionery.
HMRC’s appeal against a 2022 decision by the first tier tribunal (FTT) that Innovative Bites Ltd did not have to pay a £472,928 demand for sales tax on its “Mega Marshmallows” was unsuccessful because they were “sold and purchased as a product specifically for roasting”, the judges decided.
VAT is paid on confectionery at 20% including “sweetened prepared food which is normally eaten with the fingers” – a description HMRC argued applied to Mega Marshmallows. In an appeal to the upper tier tribunal, Charlotte Brown, for HMRC, said that the FTT had erred in not giving “particular weight to the means of eating”, pointing out that normal sized marshmallows were subject to the standard 20% rate of VAT.
However, Tim Brown, for Innovative Bites, sought to draw on the similarities with cooking chocolate and tiny marshmallows, which, although confectionery, are not taxed because they are cooking ingredients.
The judges ultimately endorsed the view taken by the FTT, which noted: “Clearly if the product is not roasted then it will be eaten with the fingers, perhaps having been cut up for children under six. However, once roasted and cooled, the product might be either eaten off the stick or with the fingers. In the circumstances of this product, we do not give particular weight to the means of eating.”
In a written judgment from earlier this month, appeal judges Phyllis Ramshaw and Nicholas Aleksander said: “Although not explicit it is reasonably clear that by finding that there were different ways of eating the product (and in the context of its other findings that the product was sold and packaged as specifically for roasting) the FTT seemed unable to conclude what method was more usually or more often used to eat the product hence the, perhaps infelicitous, reference to the weight to be attached.”
They said it was reasonable to take into account the fact that the product was intended to be subject to a cooking process before being eaten when considering if the typical consumer would view it as confectionery, adding: “We do not accept Ms Brown’s submission that roasting a marshmallow is ‘simply heating’ it … the FTT held that ‘roasting the marshmallows gives them a different texture and flavour … Roasting larger marshmallows also gives a different result in terms of the ratio of crisp outer to soft inner mallow.’ Roasting a marshmallow gives rise to a physical change in the product, caramelising the outer skin and making the interior molten.”
The judges also deemed “the finding that more Mega Marshmallows were eaten during the warmer months [and so more likely to be roasted] is not unreasonable”.
The case bears similarities to previous battles fought over which sweet treats are subject to tax. In the 1990s, in a famous case against McVitie’s, HM Customs and Excise (now HMRC) unsuccessfully argued that Jaffa Cakes were biscuits as opposed to cakes, which are zero-rated, and so should attract VAT.
More recently, the tax tribunal ruled that 36 flapjacks produced by Glanbia Milk were not cakes because they would not be eaten for afternoon tea, were more commonly eaten on the go, were not baked and contained significant amounts of protein.
