Many regular readers of this Blog will recall the ‘giant marshmallow saga’, that started 3 years ago. In my Blog, “Marshmallow VAT Liability: I want some more!”, posted on 22nd October 2022, I told you about a brilliantly bonkers case at the First Tier Tax Tribunal (FTTT) case, which HMRC lost convincingly.
The next episode of the saga, “Marshmallow VAT Liability Round 2: When will HMRC ever learn?”, posted on 28th April 2024, was this time at the Upper Tier Tax Tribunal (UTTT). In round 2, HMRC attempted to overturn the decision of the FTTT and once again received a bloody nose.
You might think this to be the end of the story, but no, as you haven’t factored in the tax office’s seemingly endless determination to argue that black is white, HMRC decided to take the case to the Court of Appeal.
If you would like to read my Blogs on the first two rounds of the saga, round one can be found by posting the URL: https://morganjones.co.uk/2022/10/27/marshmallow-vat-liability/ with round 2’s Blog found by posting the URL: https://morganjones.co.uk/2024/04/28/marshmallow-vat-liability-round-2/
Things get sticky
So, boys and girls, I invite you to gather around the campfire for the latest chapter in the bizarre and fascinating saga of whether Mega Marshmallows are zero rated or standard rated for VAT. The Court of Appeal in a somewhat fudged decision, has ruled that there’s s’more to come in this long-running saga and has sent the case back to the FTTT to reconsider the evidence and decide one way or the other.
The key question for the FTTT to decide is: “How do you eat yours?” Do you put the Mega Marshmallows on a skewer and roast them over a fire, or do you eat them with your fingers? The answer to that question will be critical when the FTTT reexamines the case.
A quick recap
Mega Marshmallows are a product sold by Innovative Bites Limited and were found to be zero rated when the case was originally heard in 2022. This decision overturned a HMRC assessment of nearly half a million pounds, which HMRC deemed to be due because they considered the product to be standard rated at 20% for VAT, as they judged the Mega Marshmallows to be items of confectionary.
HMRC had argued that the Mega Marshmallows were confectionery and therefore standard rated because they considered them to be items of sweetened prepared food which are normally eaten with the fingers. Luckily for Innovative Bites, the FTTT judge found that the product was not confectionery, stating in his summing up that the Mega Marshmallows were “more likely to be consumed in warmer months than other mallow products”, largely because they are “more likely to be purchased in order to be roasted over a flame rather than consumed as a snack without roasting”.
The judge also took into consideration that the product had been “ clearly positioned in supermarket aisles in the barbecue section during the summer months when the vast majority of sales are made” and the size of the product was specifically marketed for roasting. The judge concluded that the product was obviously intended to be roasted or used as an ingredient in the campfire treat “s’mores.”
Appeal Court decision
The panel of three judges spent a great deal of time considering the merits of the case, before eventually handing down their judgement (or nonjudgement in this case). One judge came down in favour of Innovative Bites Limited, however the other two were disappointingly undecided and it needs two out of three judges to agree for a decision to be valid.
The chair of the panel then decided to refer the case back to the lower court to reconsider all aspects of the arguments for and against zero-rating the Mega Marshmallows. She also indicated that having re-examined the arguments by both sides, whatever decision the FTTT came to, the Court of appeal would be inclined to endorse.
Accountant’s view
Having followed this case for 3 years, I am hopeful that the FTTT will maintain their original decision, especially so, as the FTTT chair at the original hearing has stated his belief that the product was clearly intended to be roasted before consumption, which was reinforced by how the product was marketed. However, given HMRC’s seemingly endless masochistic tendencies in tribunal cases, I strongly suspect them to adopt the ‘King Canute’ approach and once again go back to court.
I would hope that as Rachel Reeves is looking to cut any waste and all unnecessary expenditure, that she will look at the tax office’s expenditure of over £100,000 in legal costs thusfar and would encourage HMRC not to waste many more thousands of taxpayers money in the vain attempt to win with the last throw of the dice.
Unfortunately, common sense does not appear to be a word in HMRC’s lexicon and I strongly suspect that they will demand yet another day in court, however futile that may be.
