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Should jumbo, American-style marshmallows, usually used for roasting over an open fire, be classified as confectionary? By answering 'no' to that question, a tribunal left HM Revenue and Customs (HMRC) with a bitter taste in its mouth.
The case concerned a product known as 'Mega Marshmallows', which are inspired by a traditional American treat. They can be eaten uncooked but, in the US, they are usually roasted over a barbecue or open fire before being used as an ingredient in a popular snack called a "s'more". These consist of a roasted marshmallow and a layer of chocolate sandwiched between two digestive biscuits.
HMRC took the view that the product was properly categorised as confectionary and was thus subject to VAT at the standard rate. On that basis, it issued the product's wholesaler with VAT assessments covering a four-year period. The wholesaler challenged the assessments, which totalled more than £470,000.
Ruling on the matter, the First-tier Tribunal (FTT) noted that it was common ground that regular-size marshmallows are confectionary. Like their smaller brethren, Mega Marshmallows also bear the fundamental characteristics of confectionary in that they are both sweet and a confection produced by mixing ingredients. They do not have to be cooked and can be eaten straight from the bag.
Upholding the wholesaler's appeal, however, the FTT noted that confectionary is not usually cooked or used as an ingredient in cooking. Mega Marshmallows generally appear in the 'world food' section of supermarkets, rather than in confectionary aisles. Their increased sales during the summer months indicated that purchasers generally roast them outdoors prior to consumption.
Their marketing, packaging and size all indicated that they were primarily intended for roasting. Purchasers in search of a sweet snack would tend to choose a regular marshmallow. After considering Mega Marshmallows through the eyes of a typical consumer, the FTT was, on balance, satisfied that they are not confectionary and should thus be zero-rated for VAT.