My sister-in-law recently told me that she used to use marshmallows as a bribe to persuade her son to tidy his bedroom, with the bigger the mess, the bigger the marshmallow. In today’s brilliantly bonkers tax tribunal case, they did not consider the “bribability” factor of marshmallows, but nonetheless it offered an interesting analysis of what is confectionery for VAT purposes, and how the size of a product can impact on its liability to VAT.
Marshmallow VAT Liability: Tribunal Background
This case focused on the VAT liability of giant marshmallows and whether they can be zero-rated for VAT purposes, unlike regular-sized marshmallows. The taxpayer, Innovative Bites Limited (IBL) is a wholesaler of American treats and sweets and supplied “mega marshmallows”, which are more than double the size of regular marshmallows.
IBL believed that the mega marshmallows should be zero-rated and put forward three main arguments:
- The size of the marshmallows means it is easier to roast them on a skewer over an open fire. While the product can be consumed as they are purchased, they would normally be roasted and not used for snacking or eaten with the fingers.
- The marshmallows are not confectionery because they are intended to be roasted or used as an ingredient in the classic American campfire treat, s’mores. The packaging of the products holds them out as primarily intended to be roasted, and contains specific instructions for roasting, even though it states that the product is “perfect for roasting, s’mores or just snacking”. (See Note 1)
- In a retail setting, the marshmallows are displayed in the barbecue section, with statistics showing that the products had a greater percentage of sales during the period May to October in the years 2019 to 2021, in comparison to the sales of all other mallow products.
Marshmallow VAT Liability: It’s all a matter of size
In its consideration of the facts, the tribunal summarised that the issue to be decided is whether the term “confectionery” includes an item intended to be subjected to another cooking process before being eaten, and to some extent intended to be used as an ingredient in making another product.
On the balance of facts, the tribunal accepted the mega marshmallows do not fall within the term confectionery because they are sold and purchased specifically for roasting, with the marketing on the packaging confirming that purpose. They also accepted that the size of the product makes it particularly suitable for roasting and, furthermore, the product is held out for sale in the barbecue section of stores during the summer months, when most sales are made.
Marshmallow VAT Liability: Snacks v S’mores
This case shows that the way a product is marketed is becoming ever more important in how it is treated for VAT and builds on two earlier tribunal decisions. Both these decisions involved the VAT treatment of products with a potential dual use, with how the product was marketed and sold being an important relevant factor in both cases.
Interestingly, in IBL’s case, the marshmallows were marketed as being sold for snacking as well as roasting. They didn’t need to be cooked in order to be consumed. Therefore, the tribunal could easily have decided snacking was prominent enough as an option for consumption that the product should be liable to VAT at 20% as standard-rated confectionery. Instead, the tribunal gave more weight to the probability of the marshmallows being roasted because of their size and deemed them to be zero-rated for VAT.
The marshmallow size test
The tribunal helpfully provided some additional notes to their decision, in an attempt to head-off potential future arguments on ‘does size matter’? So, my reading of the notes indicates that:
- Miniature marshmallows can be zero-rated if marketed as being for baking use
- Regular-sized marshmallows are standard rated at 20% as confectionery
- Large marshmallows can be zero-rated if marketed for roasting or making s’mores
Marshmallow VAT Liability: Finger food
In this tribunal case, HMRC placed a lot of emphasis on an item of confectionery being “eaten with the fingers”. Is this a fair test though? I wonder, if somebody made a giant Mars bar that was too heavy or big to hold, and people had to cut it up with a knife to eat it – would it not still be confectionery, just very large confectionery?
What if some Mars bars were sold specifically as being suitable for deep frying in batter (which anecdotally is the case in NE England, Scotland and Australia, where the horrifically high calories sweet treat is most popular) – would that become a non-confectionery ingredient and zero-rated? There is some food for thought there.
Tax Accountant’s view
This was a potentially awkward case which was decided by the tribunal using commonsense; long may this attitude prevail!
(Note 1: A s’more is a traditional camping snack that has been popular with kids of all ages for years and years in America. The s’more is basically a sandwich of roasted marshmallows and chocolate between two Graham crackers (the UK equivalent are digestive biscuits). No-one knows for sure whether the Girl Scouts were the first to make “some mores,” but they’re the only ones to claim to have invented them. Over time the name got shortened to “s’more”, but the first recipe for “some mores” appeared in Girl Scout publications as early as 1941.)