HMRC roasted by ‘mega’ marshmallows after Tax Tribunal dismisses appeal

In a blow to the HMRC, the Upper Tax Tribunal has agreed with a decision that ‘mega marshmallows’ are not confectionery and, therefore, can continue to be taxed at zero-rated.

A London-based wholesaler of American sweets and treats, Innovative Bites, appealed after the HMRC decided that ‘mega marshmallows’ was confectionery and ought to have been standard rated.

The case first went to the First Tier Tribunal, which concluded that mega marshmallows are sold and purchased as a product specifically for roasting. When reaching its findings, the FTT considered the marketing, the packaging, the size of the product, the positioning in supermarkets and the seasonal fluctuation in sales.

Unhappy with this ruling, HMRC were granted an appeal at the Upper Tax Tribunal.

However, Judge Phyllis Ramshaw and Judge Nicholas Aleksander concluded last week that there was no error of law in the FTT decision. HMRC’s appeal was then dismissed.

Commenting on this decision, Glyn Edwards, VAT director at accountancy firm MHA said: “Everyone’s favourite tax case involving outsized marshmallows has finally been decided in the producer’s favour. Size and packaging it seems is important and giant marshmallows will continue to be zero rated.”

He explained that HMRC had already accepted that ‘tiny’ marshmallows are zero-rated as cooking ingredients, so only ‘normal’ sized ones will now be liable to 20 per cent VAT.

On this case, a HMRC spokesperson told City A.M., that it is “considering the Upper Tribunal’s decision.”

What type of VAT is applied to products finds itself at the Tribunal many times as companies try to worm into the zero-rated VAT territory.

Just at the start of this year, Walkers tried to argue that its Sensations Poppadoms should be zero-rated for VAT as they were designed to complement Indian meals. However, the Tax Tribunal ruled that they ‘are similar to potato crisps’ and therefore are not eligible for the zero-rated VAT.