Marshmallow firm pulls victory out of the fire in tax court battle as it successfully argues the treats are ingredients not sweets and so are not liable to £470,000 VAT bill

• Sweets wholesaler said the marshmallows are primarily for roasting first 
• But HMRC said they owed VAT money as they were confectionery 
• At court, the judge ruled Mega Marshmallows would be more often roasted 
• It was concluded that Mega Marshmallows were ingredients and not sweets 

A marshmallow firm has pulled victory out of the fire after it successfully argued that the treats are ingredients not sweets and so are not liable to a £470,000 VAT bill. 

American sweets wholesaler Innovative Bites distributes Mega Marshmallows, which were deemed to not be confectionery at the tribunal.

The company were told that they owed £472,928 in VAT from between June 2015 and 2019 for the sales of the marshmallows by HM Revenue and Customs.

According to the Times, products which are used for cooking can be zero-rated whereas confectionery would incur a VAT charge.

The wholesaler argued that the Mega Marshmallows were made for roasting over a campfire for s’mores.

S’mores are comprised of marshmallows and chocolate between digestive biscuits.   

Innovate Bites argued that their Mega Marshmallows were not confectionery as they would only be consumed after being roasted but HMRC said they could be eaten from the bag as a snack. 

Innovate Bites argued that their Mega Marshmallows were not confectionery as they would only be consumed after being roasted but HMRC said they could be eaten from the bag as a snack (stock image)

The tax tribunal were shown in evidence the size of the marshmallows, which came in at around 5cm in height and 3.5-4.5cm diameter. 

They were compared to regular ones which came in at 2cm in height with a diameter of 2.5cm.   

And a packet of the product was shown in evidence, which showed on the packaging how to heat the Mega Marshmallows and make them into s’mores.  

But the HMRC disagreed with the idea that the marshmallows were primarily for roasting.

And they said that they could be eaten on their own or after they had been roasted and cooled down.   

HMRC said that due to other large products which have appeared on the market, Mega Marshmallows could be the same.

They also said that s’mores could be made with regular marshmallows too.  

Innovative Bites disagreed and said that Mega Marshmallows were easier to roast on a skewer. 

Concluding, Judge Jonathan Cannan said that the product does not fall to be described as confectionery and must be zero rated. He said that if a consumer wanted to eat marshmallows as a snack they would be more likely to eat regular ones (stock image)

Mega Marshmallows are usually put in ‘world foods’ aisles and not with confectionery, according to the court.    

They are sold in Iceland, Morrisons, Asda and other supermarkets.

Concluding, Judge Jonathan Cannan said that the product does not fall to be described as confectionery and must be zero rated. 

He said that if a consumer wanted to eat marshmallows as a snack they would be more likely to eat regular ones.

And he added that the court infers that those buying Mega Marshmallows are more likely to  do so to roast them rather than eat them as a snack.  

A HMRC spokesperson said: ‘HMRC is carefully considering the judgment by the First-tier Tribunal’.

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