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Tribunal adopts an unusual, but logical, step to settle long-running dispute.
A long-running VAT dispute between HMRC and Innovative Bites Ltd (IBL) has concluded with a notable decision on the VAT treatment of ‘Mega Marshmallows’.
After multiple tribunal hearings, the product was ultimately held to be zero-rated for VAT, rather than subject to the standard 20% rate.
Under the Value Added Tax Act 1994, Schedule 8 Group 1 most food is zero-rated, but certain categories included in excepted items – most notably confectionery – are excluded and therefore subject to the standard 20% VAT rate.
Note 5 to Group 1 reads: ‘… for the purposes of item 2 of the excepted items ‘confectionery’ includes chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers’.
HMRC argued that the oversized marshmallows fell squarely within this definition and issued assessments totalling £472,928 in respect of accounting periods between 2015 and 2019.
The product itself is materially different from standard marshmallows. At approximately 5cm in size, it is more than double the height of a typical marshmallow and is specifically marketed for roasting, often over an open flame, and for use in making s’mores. A s’more (some more) is a traditional campfire treat, very popular in the United States and Canada, consisting of a roasted marshmallow and a piece of chocolate sandwiched between two pieces of crackers (biscuits).
Packaging, product placement in retail environments, and seasonal sales patterns all pointed towards use in barbecues or outdoor settings rather than casual snacking.
The dispute first came before the first-tier tribunal in 2022, which found in favour of Innovative Bites Ltd. The Tribunal concluded that the product was not confectionery in the ordinary sense, placing weight on its intended use and how it was marketed and consumed. This decision was upheld by the upper tribunal in 2024, which interpreted the statutory definition in Note 5 as non-conclusive, allowing for contextual factors to override it.
However, the Court of Appeal took a different view in 2025 and allowed HMRC’s appeal and remitted the case to the First Tier Tribunal (FTT) to consider whether Mega Marshmallows are a ‘sweetened prepared food which is normally eaten with the fingers’.
At the re-hearing, the ribunal undertook a detailed analysis of how the product is actually consumed in practice and identified four ways:
- roasted on a skewer/stick (collectively skewer) and eaten from the skewer (Way A)
- roasted on a skewer, taken off the skewer after it has sufficiently cooled and eaten with the fingers (Way B)
- roasted on a skewer, inserted in the middle of two biscuits with a piece of chocolate and eaten as a s’more (Way C)
- eaten straight from the pack with the fingers (Way D).
It was further agreed that Way A, eating from the skewer, was not eating with the fingers, whereas Ways B and D did constitute eating with the fingers. There was a dispute as to Way C which we deal with next: HMRC contended that consuming the product after putting it in a s’more constituted ‘eating with the fingers’, whereas the appellant submitted the opposite.
The tribunal also considered consumer behaviour, retail presentation and the product’s intended use. It found that roasting was the primary mode of consumption and that, in this state, the marshmallow was more likely to be eaten either directly from the skewer or as part of a s’more. In both cases, it was not the marshmallow itself that was being handled directly by the fingers. By contrast, eating the product unroasted as a snack was considered less typical, particularly given its size and positioning in stores.
In an unusual but logical step, the Tribunal expressed its conclusion in mathematical terms, comparing the likelihood of non-finger consumption methods against finger-based ones. It concluded that the former predominated, meaning the product was not ‘normally eaten with the fingers’. As a result, it did not fall within the statutory definition of confectionery and remained zero-rated.
This decision brings to an end a protracted and costly dispute, although HMRC retains the option to appeal. More broadly, the case illustrates the complexity and, at times, unpredictability of VAT classification. It demonstrates how finely balanced factual distinctions such as the method by which a product is consumed can determine significant tax outcomes. In doing so, it reinforces the importance of detailed evidence and careful statutory interpretation in VAT matters, particularly in areas where legislative definitions leave room for argument.