VAT and Marshmallows - A history of appeals and tribunals

If you mention VAT and food, most people think of Jaffa Cakes - even if they are unaware of the tribunal case which led to the decision that Jaffa cakes are, for VAT purposes, zero-rated cakes and not chocolate biscuits and, therefore, free from VAT.

However, based on the number of appeals made to the Tax Tribunal, it appears that the VAT treatment of marshmallow products is just as contentious.

The M&S chocolate teacake tribunal (1994)

The first marshmallow product to become the subject of an appeal was the chocolate teacake on which Marks & Spencer (M&S) charged VAT as directed by HMCE (now HMRC).

In 1994, HMCE admitted they had got this wrong and wrote to M&S accordingly leading to M&S putting in a claim for overpaid VAT going back to 1973.

When HMCE refused to pay the claim, M&S appealed and eventually obtained their refund after the appeal was taken to both the European Court of Justice and the House of Lords.-

The marshmallow 'snowballs' VAT tribunal (2014)

Despite teacakes being classified as cakes and zero-rated, HMRC did not accept that the zero-rating extended to marshmallow ‘snowballs’ which HMRC continued to maintain were confectionery and subject to VAT.

In 2014, two Scottish manufacturers, Lees of Scotland and Thomas Tunnock Ltd appealed to the Tribunal, on the basis that ‘snowballs’ were cakes. The Tribunal agreed and the judge commented:

“A Snowball looks like a cake. It is not out of place on a plate full of cakes. A Snowball has the mouth feel of a cake."

Marshmallow-filled cones are zero-rated "biscuits"

Another marshmallow product subject to an appeal was a marshmallow-filled cone (of the type commonly used for ice creams) topped with sugar.

Again, HMRC considered these to be standard-rated confectionery but an appeal by Kathy’s Kones Ltd was successful and HMRC now accepts that marshmallow-filled cones are zero-rated biscuits.

Giant marshmallows and VAT - does size matter?

In the most recent ‘marshmallow’ appeal the tribunal was asked to make a ruling on the VAT treatment of giant marshmallows.

Again, HMRC was of the opinion that VAT should be charged as marshmallows are confectionery. Innovative Bites Ltd disagreed and argued that these giant marshmallows were intended to be cooked before consumption and would be eaten off a skewer rather than with the fingers. They should, therefore, be treated as zero-rated food.

The Tribunal considered how the marshmallows were packaged and marketed including the fact that they were sold alongside foodstuffs for barbeques and concluded that giant marshmallows are zero-rated food in the same way that mini marshmallows for use in baking are zero-rated food.

Standard-sized marshmallows sold alongside confectionery are still subject to VAT at the standard rate.

Does this sound confusing? Don't worry: we can help!

Marshmallows are just one example of how complex it can be to establish whether food is standard or zero-rated.

If you sell food products and are unsure of the correct VAT treatment our experienced VAT team, using their knowledge of VAT case law can help you to get it right and avoid challenges by HMRC if you are subject to a VAT inspection.

Useful links

• Speak to the Shorts VAT team today.
• Read more: VAT and children's face masks.
• Read more: What is VAT? Complete guide.
• Read more: VAT on second hand  goods.