Giant marshmallows- cooking ingredient or confectionery? Another bizarre VAT case

The law says “confectionery” is subject to 20% VAT. When the law was first drafted, most confectionary took the form of sweets or chocolates, but recent developments continue to throw up borderline issues.

A company called Innovative Bites Limited produces Mega Marshmallows. These are considerably larger than usual and are intended to be roasted over a campfire or barbecue and then eaten, or used as an ingredient in a traditional American campfire treat called a “s’more” which involves sandwiching a roasted marshmallow and a layer of chocolate between two digestive biscuits.

The taxpayer argues that Mega Marshmallows are VAT-free, as a cooking ingredient, but HMRC says VAT is due, because if you could (1) describe the product as “confectionery”, and (2) there was no express zero-rating (as there is for cake, for example) that was the end of the matter, even if the product wasn’t intended to be a sweet snack you could eat on the go.

The taxpayer Appealed against HMRC’s decision that VAT was due, arguing that if a product is designed for a cooking process, it isn’t confectionary. A major problem for HMRC was that zero-rating is allowed for bars of cooking chocolate, provided that the evidence is that these are indeed intended as a cooking ingredient, rather than for a sweet snack.

The Tribunal decided the correct approach is to weigh up all the evidence as to how the product is held out for sale, when determining whether it is “confectionery.”

On the established facts, supermarkets usually sell Mega Marshmallows in the barbecue aisle during the summer months, when most sales are made (and in the “World Foods” aisle at other times); and the packaging clearly positions the product as best when roasted, giving recipes and instructions for roasting them.

On this basis, both the First Tier and Upper Tribunals found that the product can be zero-rated. It will be interesting to see if HMRC pursue this further.