The recent case of Innovative Bites Ltd v Revenue & Customs [2022] UKFTT 352 held that the brand of ‘mega’ marshmallows are categorised as ingredients and not confectionary therefore tax-free.
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Background
Typically, VAT is payable on confectionery with the exception of being zero-rated where they are used for cooking. Innovative Bites Ltd had won the fight to challenge a large bill by arguing the purpose of its Mega Marshmallows are to be roasted, unlike confectionery which is eaten straight out of the pack.
The Loughborough-based firm brought the case before a First Tier Tax Tribunal (FTT) to argue the large marshmallows, measured at 5cm in height compared to 2.5cm for regular marshmallows, were ingredients for S’mores (an American snack consisting of marshmallows, sandwiched between chocolate biscuits).
The packaging also made it clear the product was made to be used as a roasting ingredient, although HMRC argued the products could still be consumed ‘on the go’ as a bag of sweets therefore should be entitled to the standard rate of 20%.
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Decision
The Tribunal judge, Jonathon Cannan, ruled that the product ‘Mega Marshmallows’ did not fall under the definition of confectionery. It was marketed and purchased as a product specifically for roasting, not to mention sold in the barbecue aisle during summer months rather than the ‘World Foods’ or confectionery section.
As a result, the product was zero-rated for tax purposes and Innovative Bites Ltd was exempt from paying £473,000 in tax.
What does this case highlight?
The way in which a product is marketed and sold holds significant importance in questions of ambiguity surrounding a products categorisation. The FTT relied on Customs and Excise Commissioners v Ferrero UK Ltd [1997] STC 881, endorsing principles which related to the characteristics of a product. One of which stated: “a product should be categorised by reference to the view of an ordinary man in the street”. Where a bag of Mega Marshmallows is advertised and sold as a roasting ingredient, it can be seen by an ordinary man to be just that – a roasting ingredient for S’mores (as advertised).
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