In HMRC v Innovative Bites Limited [2024] UKUT 95 (TCC), the Upper Tribunal (UT) confirmed that Mega Marshmallows are food but not confectionery and should be zero-rated for VAT.
- Innovative Bites Limited (IBL) is a wholesaler of American sweets and treats. Mega Marshmallows are oversized marshmallows approximately 5cm high with a diameter of 3.5 to 4.5cm that are intended to be roasted as part of a 's'more' (also known as 'snore'); a 'traditional American campfire treat' consisting of a roasted marshmallow coated in chocolate and sandwiched between two digestive biscuits.
- HMRC decided the product in question was confectionery and should be standard-rated. In August 2019 they issued VAT assessments for the periods from June 2015 to June 2019 in the sum of £472,928.
- IBL Appealed against the decision of HMRC and the FTT found in their favour.
HMRC appealed The decision of the FTT:
- The primary issue for the UT was whether the product fell within Excepted Item 2 in relation to Supplies of food of a kind used for human consumption that are zero-rated for VAT and the proper interpretation of Note 5 to this item.
- The end of Note 5 reads: "...'confectionery' includes chocolates, sweets and biscuits ..... and any item of sweetened prepared food which is normally eaten with the fingers".
- HMRC argued there was no need to take a wider approach to the issue when an item clearly falls within a deeming provision such as Note 5. The FTT had been incorrect in looking at the matter in the round.
- The UT agreed with the Appellant that Note 5 is not a deeming provision. It has been amended over time to expand the meaning of confectionery to include modern products such as cereal bars.
- HMRC also contradicted themselves by submitting that cooking chocolate and mini marshmallows are untaxed by concession because they are used as ingredients in cooking.
The UT decided that:
- The burden is on the taxpayer to demonstrate the product is not normally eaten with the fingers.
- They found no fault in the FTT's finding that the size of the packaging and the product itself do not suggest it is intended to be eaten on the go.
- There was no perverse inference of fact by the FTT along the lines of Edwards v Bairstow [1956] because they considered a basket of evidence and did not simply rely on an argument about the seasonality of sales.
- HMRC did not help their case by supplying a photo of the placing of Haribo Chamallows in Tesco's!
- Mega Marshmallows are food.
The appeal by HMRC was dismissed.
Useful guides on this topic
Food: Catering and takeaway
What is the VAT rate charged on food? How does this differ depending on hot or cold food and food consumed on or off the supplier's premises?
Appeals: VAT
How do I appeal a VAT penalty? How can I request a Statutory Review? How do I appeal an HMRC decision?
Assessments: Best judgement
What is a 'best judgement' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgement assessment?
External links
HMRC v Innovative Bites Limited [2024] UKUT 00095 (TCC)
