FTT dismisses HMRC’s appeal to charge VAT on Mega Marshmallows

The First Tier Tribunal (FTT) has appealed against HMRC’s decision that supplies of Innovative Bites Ltd (IBL) ‘Mega Marshmallow’ are standard rated supplies of confectionery pursuant to Excepted Item 2 of Group 1 of Schedule 8 to the Value Added Tax Act 1994 (‘VATA’).

The ruling follows IBL’s argument that Mega Marshmallows are exempt from VAT when used as a cooking ingredient. HMRC, however, opposed that VAT is required because the product could be classified as “confectionery” and there was no express zero-rating, unlike cake, which would have resolved the issue even if it wasn’t meant to be an on the go, sugary snack.

IBL is a wholesaler of American sweets and treats. Mega Marshmallows are oversized marshmallows approximately 5 cm 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.

The conclusion reached by the FTT was that Mega Marshmallows are not confectionery and that the supply is therefore zero-rated.

The conclusion was based on the findings that Mega Marshmallows are sold and purchased as a product specifically for roasting.

The FTT considered the marketing, the packaging, the size of the product, the positioning in supermarkets and the seasonal fluctuation in sales when reaching its findings. Permission to appeal was granted by the Upper Tribunal.