How Do You Eat Your Marshmallow? A £470,000 VAT question...
The recent HMRC v. Innovative Bites case has shown that when it comes to VAT, even how you eat a marshmallow matters. The company argued their “Mega Marshmallows” were cooking ingredients, highlighting their suitability for roasting over open flames and their use in making s'mores. HMRC claimed they were confectionery, leading to a dispute over approximately £470,000 in VAT liabilities.
After winding through the courts, the case is now back at the tribunal to answer one surprisingly tricky question: Are marshmallows normally eaten with the fingers?
It might sound trivial but it’s a key criterion. Under VAT rules, the definition of confectionery includes sweetened prepared food that is normally eaten with the fingers, especially if consumed as a treat or snack. If marshmallows are typically eaten straight from the bag, they lean toward confectionery and taxable at the standard 20% VAT rate. But if they are primarily bought for cooking or toasting, and not usually eaten as-is, they may qualify for zero-rating.
For those that remember, this is the most recent prominent case in a string of cases that started with whether Jaffa Cakes were cakes or biscuits, and whether Sensations Poppadom's were merely complements for Indian meals.
These cases are a reminder that VAT classification isn’t always straightforward - and mistakes can be costly. The smallest details can trigger large assessments, penalties, and years of litigation.
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