Mega Marshmallows are not confectionery for VAT

In Innovative Bites Limited v HMRC [2022] TC08605, the First Tier Tribunal (FTT) found that ‘Mega Marshmallows’ were not confectionery and so were zero-rated for VAT purposes.

• Innovative Bites Limited (IBL) was a wholesaler of American sweets and treats, including a food product called ‘Mega Marshmallows’.
• Mega Marshmallows are oversized marshmallows, approximately 5cm in height with a diameter of 3.5 to 4.5cm.
• The product was intended to be:
  • Roasted over a campfire or barbecue and then eaten.
  • Used as an ingredient in a 's’more', a traditional American campfire treat consisting of a roasted marshmallow and a layer of chocolate between two digestive biscuits.
• Between 2015 and 2019, IBL treated sales of Mega Marshmallows as zero-rated for VAT purposes.
• HMRC raised VAT assessments totalling £472,928 on the basis that the product was confectionery and therefore should have been standard rated.
• IBL Appealed to the First Tier Tribunal (FTT).

Supplies of food of a kind used for human consumption are zero-rated for VAT, subject to a number of exceptions.

These excepted items include confectionery, which is standard rated, except in the case of cakes and non-chocolate covered biscuits, which remain zero-rated.

The FTT found that:

• A product which is intended to be used as an ingredient in making another product might not be expected to be confectionery.
• The packaging and product itself did not suggest it was intended to be eaten on the go, like a packet of sweets or a smaller packet of regular marshmallows.
• Mega Marshmallows were sold and purchased as a product specifically for roasting. This was confirmed by:
  • The packaging.
  • The size of the product, which made it particularly suitable for roasting.
  • Its positioning in the barbecue section of supermarket aisles during the summer months, when most sales were made.
• Taken together, these points indicated that Mega Marshmallows were not confectionery.

The appeal was allowed.

UPDATE: This case has been appealed to the Upper Tribunal.

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 link

Innovative Bites Limited v HMRC [2022] TC08605