In a delicious victory, food company Innovative Bites Ltd has emerged victorious against UK tax authorities, winning a ruling exempting Mega Marshmallows from VAT due to their classification as cooking ingredients rather than confectionery.
HMRC has appealed a 2022 decision by the First-tier Tribunal (FTT), which exempted Innovative Bites Ltd from paying a whopping £472,928 in sales tax on its marshmallow products. HMRC has confirmed that marshmallows should be subject to the standard VAT rate of 20%, due to their status as “sweetened prepared foods that are typically eaten with the fingers”.
However, the High Court rejected HMRC's arguments, confirming the FTC's ruling that large marshmallows were mostly bought and sold for roasting rather than immediate consumption as sweets. Although HMRC focused on means of consumption, the judges sided with the “creative bites”, highlighting the intended use of marshmallows in cooking and their subsequent physical transformation when roasted.
The judges confirmed that roasting the marshmallow resulted in a clear change in texture and flavour, distinguishing it from standard confectionery products. They also took into account seasonal consumption patterns, noting that large marshmallows were more commonly consumed during warmer months, consistent with their intended use for roasting.
The case reflects previous legal disputes over the status of VAT on foodstuffs, and is reminiscent of the famous battle over the classification of Jaffa cakes as biscuits or cakes in the 1990s. Likewise, the latest ruling draws comparisons to a case involving Glanbia Milk's fatayer, where the court determined its VAT liability on the basis of factors such as consumption habits and product characteristics.
The win by Innovative Bites Ltd underscores the nuanced nature of VAT classifications in the food industry and sets a precedent for similar cases relating to the tax status of culinary products.