Innovative Bites Wins VAT Battle Over Mega Marshmallows
Innovative Bites Ltd., a food company, has successfully defended its "Mega Marshmallows" against the UK tax authorities. The company argued that its marshmallows should be classified as cooking ingredients rather than confectionery, exempting them from Value Added Tax (VAT).
The case began when HM Revenue and Customs (HMRC) appealed a 2022 decision by the First-tier Tribunal (FTT) that absolved Innovative Bites from paying £472,928 in sales tax on its marshmallows. HMRC argued that the marshmallows should be subject to the standard 20% VAT rate, considering them "sweetened prepared food which is normally eaten with the fingers."
However, the Upper-tier Tribunal sided with Innovative Bites, upholding the FTT's ruling. The judges agreed that the Mega Marshmallows were primarily sold and purchased for roasting, not immediate consumption as confectionery. They emphasized the marshmallows' intended use in cooking and their transformation when roasted, resulting in a distinct change in texture and flavor.
This decision echoes previous legal disputes over the VAT status of food items, such as the Jaffa Cakes case in the 1990s and the Glanbia Milk flapjack case. It highlights the nuanced nature of VAT classifications in the food industry and sets a precedent for similar cases involving the tax status of culinary products.