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Victory for Innovative Bites Ltd as judges rule on VAT-free marshmallows

In a tasty victory, Innovative Bites Ltd, a food company, has emerged triumphant against UK tax authorities, obtaining a ruling exempting its ‘Mega Marshmallows’ from VAT due to their classification as a cooking ingredient rather than confectionery.

HM Revenue and Customs (HMRC) had appealed a 2022 decision by the First-tier Tribunal (FTT), which had cleared Innovative Bites Ltd of paying a hefty £472,928 in sales tax on its marshmallow products. HMRC argued that the marshmallows should be subject to the standard VAT rate of 20%, given their status as “sweetened prepared food normally eaten with the fingers.”

However, the higher tribunal rejected HMRC’s arguments and upheld the FTT’s determination that the Mega Marshmallows were sold and purchased primarily for roasting rather than for immediate consumption as confectionery. Despite HMRC’s emphasis on the means of consumption, the judges sided with Innovative Bites, highlighting the intended use of the marshmallows in cooking and their subsequent physical transformation when roasting.

The jury emphasized that roasting the marshmallows led to a clear change in texture and taste, setting them apart from standard confectionery. They also took into account seasonal consumption patterns and noted that Mega Marshmallows were consumed more frequently during the warmer months, in line with their intended use for roasting.

This case reflects previous legal disputes over the VAT status of food products, reminiscent of the famous battle over the classification of Jaffa Cakes as biscuits or cakes in the 1990s. Similarly, the recent ruling draws parallels with a case involving Glanbia Milk’s flapjacks, where the tribunal determined their VAT liability based on factors such as consumption habits and product characteristics.

Innovative Bites Ltd’s victory underlines the nuanced nature of VAT classifications in the food industry and sets a precedent for similar cases involving the tax status of culinary products.