The sticky question of whether giant marshmallows are standard or zero rated for VAT has been rumbling through the tax courts, aka Tax Tribunals, since the first case was put before them in the autumn of 2022. On that occasion HMRC got a bloody nose, but ever a glutton for punishment, HMRC appealed to the Upper Tax Tribunal in April 2024 and once again, ended up with an even bloodier nose.
Fair play to HMRC, they don’t give up easily and in March 2025 they really went for it and took the case all the way to the Court of Appeal. At the Court, the three judges fudged the issue and decided to hand the case back to the Tax Tribunal with instructions that the case should be decided on whether the giant marshmallows at the centre of the case are normally eaten with the fingers. They also stated that they would effectively rubber-stamp whatever decision the FTT came to.
(For the full background please see my 3 previous Blogs on this ongoing saga of a case.
They were posted on our website on 22/10/22, 28/04/24 & 28/03/25}
A brief history of what’s happened thusfar
This case concerns a firm called Innovative Bites Ltd who sell many yummy products, but the one that caused HMRC to have a wobbly, was their giant marshmallows, which are almost the size of a Rubix Cube and advertised to be roasted over a fire, typically a campfire or on a BBQ.
In September 2022, the first tier tribunal (FTT) concluded the items were correctly zero rated because, given their size, the fact that they were to be roasted before being eaten were unlikely to be eaten with fingers. HMRC appealed this and the upper tribunal (UTT) confirmed the FTT decision that the items were not confectionery. The key point was that smaller marshmallows eaten with the fingers are liable to 20% VAT as confectionary, but the giant version are meant to be cooked, which drops the VAT to zero.
It’s also worth noting that Mini marshmallows are zero rated as they are viewed as being for cooking, whereas normal-sized marshmallows are standard rated as these are eaten straight from the bag. The relevant VAT law states that sweetened prepared food which is normally eaten with the fingers, such as chocolates, sweets, biscuits, crystallised fruits etc are excluded from zero-rating. The key point being it boils down to, not what the product is, but the manner in which it is marketed and eaten.
Can case law help?
The nearest similar case was the one involving Tunnock’s Snowballs, which are chocolate-covered marshmallow treats, which in 2014, the FTT decided that they should be treated as zero-rated cakes, on the basis that they looked like cakes and would not look out of place on a plate or eaten from a plate, and had the same mouthfeel as a cake.
So we are into the realms of subjective tests that aim to achieve an objective outcome. I never quite understood the snowballs case – they certainly don’t feel the same as a cake and they are almost entirely marshmallow. I used to love these gooey treats and ate them straight from the wrapper but maybe that’s just me having spent my childhood in a working-class area, with perhaps more refined people using a plate.
The final showdown
The Court of Appeal judges had sent the case back to the original FTT with the instruction to focus on the concept of eating with fingers, which the CoA had concluded had not been fully dealt with previously. The tribunal approach was to analyse how the “typical” customer would consume the item and they concluded there were in essence four possible ways of eating the mega marshmallows.
- Way A: Roasted on a skewer or stick and eaten directly from it.
- Way B: Roasted on a skewer, taken off the skewer after it has sufficiently cooled and then eaten with the fingers.
- Way C: Roasted on a skewer, inserted in the middle of two biscuits with a piece of chocolate and eaten as a s’more, the campfire treat.
- Way D: Eaten straight from the pack with the fingers.
Ways A, B and D are clear enough, but Way C means that if eaten as a s’more the marshmallow is effectively an ingredient in a sandwich, not forgetting that the marshmallow had been cooked and was not being eaten directly from the bag.
Is maths the solution to the problem?
To solve the dilemma, the tribunal created a mathematical formula as follows: “We find that Way A (skewer) is more frequently used than Way B (eaten once cooled). Way C (s’more) is more frequently used than Way D (from the bag).”
“It therefore follows that in aggregate, we find as a fact that the product is more frequently eaten by one of the non-finger ways than by one of the with-fingers ways, with the maths formulation being, because A > B and C > D, (A + C) > (B + D).”. I’m good with maths, but even I struggled with that one, however the principle was clear.
The tribunal went on to say: “For these reasons, we find that the product is not normally eaten with the fingers and does not fall within Note 5 for that reason. As we have already found that the product does not fall within item 2 as confectionery, the product does not fall within that exception to the zero-rating of food of a kind used for human consumption.” Or to put it in layman’s terms, giant marshmallow should be zero-rated.
Accountant’s view
Whilst the FTT’s approach in using maths to finally settle the argument is unusual, as an accountant I rather liked it as it produced a tangible and logical answer. Whilst HMRC will not be happy with the outcome at least we now have a definitive decision to finally end this long-running saga.
One final thought struck me, that the somewhat unusual approach by the FTT to decide the case does not necessarily open the door for other food manufacturers to exploit, such as perhaps Mars promoting their giant-sized bars as being “suitable for roasting” but it does perhaps leave the door open for some niche products to re-engineer their target market.
