In HMRC v Innovative Bites Ltd [2025] EWCA Civ 293, the Court of Appeal (CoA) allowed HMRC’s appeal and remitted the case to the First Tier Tribunal (FTT) to consider whether Mega Marshmallows are a 'sweetened prepared food which is normally eaten with the fingers'.
Innovative Bites Limited (IBL), a wholesaler of American sweets and treats, sold a product called 'Mega Marshmallows'.
- 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'; 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 period from June 2015 to June 2019 for £472,928.
- IBL Appealed against HMRC's decision and the First Tier Tribunal (FTT) found in IBL's favour.
- HMRC appealed to the Upper Tribunal (UT), which also found in favour of IBL, confirming that Mega Marshmallows were food, but not confectionery and should be zero-rated for VAT.
The UT found that:
- The FTT had not erred in its method, which was to ascertain whether the product was a sweetened prepared food normally eaten with the fingers, and then undertake a multi-factorial assessment to determine whether the product is confectionery.
- The 'other factors' assessed by the FTT (namely, the messaging on the packaging, the size of the marshmallows and the fact that they were ordinarily cooked before eating) were material to the VAT classification of the marshmallows.
HMRC appealed to the Court of Appeal (CoA), arguing that:
- Although HMRC had argued that Mega Marshmallows were confectionery because they 'are an item of sweetened prepared food which is normally eaten with the fingers', the FTT did not state a conclusion on that point.
- The ‘other factors’ considered by the FTT constituted a material error of law.
Relevant legislation
- VATA 1994 Schedule 8 Group 1 provides for 'Food’ to be zero-rated.
- Group 1 contains a list of 'Excepted items' which are standard-rated unless also found in a list of 'Items overriding the exceptions'.
- 'Excepted items' include, as Item 2, “Confectionery, not including cakes or biscuits other than biscuits wholly or partly covered with chocolate or some product similar in taste and appearance.”
- Note 5 to Group 1 reads: “… for the purposes of item 2 of the excepted items ‘confectionery’ includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers.”
The CoA found that the FTT had erred in law:
- Subject to absurdity (see below), if a product falls within the terms of Note 5, it is confectionery and is therefore standard-rated for VAT purposes.
- In some limited cases, it would be absurd to classify a product as confectionery even if it fell within the Note 5 definition.
- An example provided was ‘sweet chilli chicken skewers’: they are an item of sweetened prepared food usually eaten with the fingers, but it would be absurd to class them as confectionery.
- Note 5 is non-exhaustive. A product will still be confectionery, and so standard-rated, if it would be regarded by an ordinary person as confectionery within the ordinary meaning of that term.
The appeal was allowed, and the case was remitted to the FTT for reconsideration. The FTT was asked to determine whether Mega Marshmallows are 'sweetened prepared food which is normally eaten with the fingers'.
Editor's comment
This plot twist in the case of Mega Marshmallows means the story is far from over. Marshmallows have proven quite contentious from a VAT-rating standpoint, with mini marshmallows being zero-rated, standard-sized marshmallows being standard-rated and an uncertain future for their mega-sized counterparts!
Useful guides on this topic
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.
Mega Marshmallows are food for VAT
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.
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 judgment & time limits
What is a 'best judgment' assessment for VAT? When can HMRC raise one? What are your rights of appeal? How do you displace a best judgment assessment? What are the time limits for a VAT assessment?
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