Ever thought your product was food, only for HMRC to say it is confectionery? That is exactly what happened in the marshmallow VAT case, a recent dispute involving mega marshmallows. The tribunal decision in Innovative Bites Ltd v HMRC is important for small business owners, especially food sellers, importers, and manufacturers. In short, this marshmallow VAT case shows how tricky product tax rules can be.
Why This VAT Case Matters to Small Businesses
At first glance, a marshmallow looks like a simple sweet. However, VAT rules are not so simple. Depending on how your product is marketed, packaged, and used, it could be taxed at 0% or 20%. In this case, the issue was whether the marshmallows were food (zero-rated) or confectionery (standard-rated).
HMRC said the “Mega Marshmallows” imported by Innovative Bites Ltd were confectionery, even though the packaging said they were ideal for BBQs. The First-tier Tribunal ruled in HMRC’s favour.
Takeaway: VAT classification depends on how a product is sold, used, and described—not just what it is.
Key Facts from the Marshmallow VAT Case
- Product: Large marshmallows, packaged with “Great for BBQs and fire pits”
- Argument: The business said these were food for cooking and should be zero-rated
- HMRC’s View: Toasted or not, marshmallows are confectionery – and should be taxed at 20%
- Tribunal’s Decision: The tribunal agreed with HMRC and confirmed the 20% VAT rate
This ruling shows that businesses must look at how they package and promote products when deciding VAT rates. In addition, how your product is used can affect the VAT treatment.
What Can Small Businesses Learn?
If you sell food, import items, or run an online shop, this case offers five useful VAT lessons:
1. Packaging and Marketing Affect VAT
Your product label matters. Describing it as a cooking ingredient may help, but it does not always mean a lower tax rate.
2. Confectionery is Always Standard-Rated
Even if it can be toasted or cooked. If it is sweet and eaten with fingers, it will likely be taxed at 20%.
3. Avoid Assumptions About VAT – Learn from the Marshmallow VAT Case
Many businesses assume food items are zero-rated. This is risky. Always check before making that decision.
4. Get Advice Early
Talk to a VAT expert or ask HMRC for a VAT ruling before you sell or import a new product.
5. Review Your Products
You might be charging the wrong VAT rate. As a result, HMRC can issue penalties, assessments, and interest.
Southside Accountants in Wimbledon can help you get it right the first time.
What Should You Do Next?
If you sell food or drinks, check your product categories and VAT rates now. Getting this wrong can cost you money.
Understanding how your product could be affected—just like in the marshmallow VAT case—can help you avoid problems later.
Contact Southside Accountants – your trusted accountants in Wimbledon
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