Eat marshmallows with your hands? HMRC wants you to pay more tax
A case over the VAT liability of giant marshmallows “has taken a new bizarre twist” after a court granted an appeal following questions on how people eat large marshmallows.
The case stems from Innovative Bites, a London-based wholesaler of American sweets and treats, appealing an HMRC decision that ‘mega marshmallows’ were confectionery.
HMRC decided that the ‘mega’ marshmallows should have been taxed at the standard rate rather than the current zero-rated rate.
All unprocessed foods for human consumption, including raw meat and fish, fruit and vegetables, cereals, nuts, pulses and culinary herbs are zero rated.
The First Tier Tribunal sided with the wholesaler, concluding the mega marshmallows were sold and purchased as a product specifically for roasting, suggesting they qualified as unprocessed food.
This didn’t stop the tax agency. It appealed to the Upper Tax Tribunal, which last April ruled against its decision.
The Upper Tribunal concluded that the First Tier Tribunal decision was not an error of law, dismissing HMRC’s appeal.
But the tax agency took this case to the Court of Appeal, as Glyn Edwards, VAT director at MHA, stated at the time, in “the hope of finally persuading the tax authorities that size isn’t everything”.
The case went ahead earlier this month, and on Friday, the three Lords granted HMRC’s appeal and remitted the case back to the First Tier Tribunal.
The court clarified that this was based on the First Tier Tribunal questioning whether mega marshmallows are “sweetened prepared food which is normally eaten with the fingers.”
As Robin Prince, VAT partner at MHA, explained: “A significant amount of tax is now going to rest on whether the Tribunal think that a giant marshmallow is normally eaten with the fingers or off of a skewer.”
“This is yet another case in a long line of VAT cases which has highlighted the complete absurdity of the VAT laws in relation to food,” he added.
Crisps giant Walkers failed to argue last year that its Sensations Poppadoms should be zero-rated for VAT as they were designed to complement Indian meals.
Prince highlighted that “it is now perhaps time for brave Chancellor to have a complete overhaul of the how the zero-rating for food works.”