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A legal battle between HM Revenue & Customs (HMRC) and Innovative Bites, a London-based American sweets importer, may cost the company £472,928 in VAT—all hinging on whether giant marshmallows are typically eaten with fingers or on a skewer.
HMRC argues that these “mega marshmallows” qualify as confectionery, which is subject to the standard 20% VAT. However, Innovative Bites contends that the product is sold primarily for roasting—an activity requiring a skewer—meaning it should be zero-rated as an unprocessed food.
Legal Timeline:
- 2022: The First-tier Tribunal ruled in favor of Innovative Bites, citing that the marshmallows were marketed in barbecue sections and meant for roasting.
- 2024: The Upper Tribunal upheld the ruling, dismissing HMRC’s appeal.
- 2025: The Court of Appeal sided with HMRC, sending the case back to the First-tier Tribunal to decide if mega marshmallows are “normally eaten with fingers.”
Lord Justice Males acknowledged the difficulty in proving how people consume marshmallows, putting the burden on Innovative Bites to show they are not typically finger food.
Why This Matters:
This case is the latest in HMRC’s history of VAT disputes over food classification, following cases like:
- Jaffa Cakes (1991): Ruled a cake, not a biscuit, making it VAT-exempt.
- Walkers Sensations Poppadoms: Found too similar to crisps, requiring VAT to be applied.
- Protein bars (2024): Declared “sweetened prepared food” and taxed accordingly.
What’s Next?
The First-tier Tribunal’s final ruling will decide if Innovative Bites must pay nearly £500,000 in backdated VAT. If HMRC wins, it may set a precedent for other snack classifications under VAT law.
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