CANDY CANED
Snack firm wins £470k tax battle with HMRC after proving its giant marshmallows are not sweets
HMRC appealed to an Upper Tribunal, arguing big marshmallows were sweets because they are 'eaten with the fingers'
A CONFECTIONERY firm has won a £470,000 tax battle after judges ruled its giant marshmallows are not sweets.
HMRC insisted Innovative Bites was liable for the huge VAT bill on the sugary treats.
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But the company successfully argued the Baking Buddy Mega Marshmallows — imported from the US — should be exempt as they are “ingredients” for cooking on barbecues, rather than sweets.
This week, two tribunal judges threw out the latest HMRC challenge.
Innovative Bites, part of the World of Sweets group in Loughborough, Leics, was hit with a £472,928 VAT bill for the years 2015 to 2019.
The firm challenged the demand and won its case at a tax tribunal in 2022.
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HM Revenue and Customs appealed to an Upper Tribunal, arguing the big marshmallows were sweets and liable for tax even if cooked, because they are a treat “eaten with the fingers”.
But judges ruled they are tax-exempt as they are often eaten hot off a stick and more are sold during barbecue season.
Judge Phyllis Ramshaw said in the ruling: “Mega Marshmallows are sold and purchased specifically for roasting.
“There is no doubt it is a confection and is sweet.
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“However, confectionery is not generally used in cooking in order to be enjoyed as intended.
"The judge made an inference of fact that higher sales between May to October meant that, as a whole, the product is more likely to be consumed in warmer months than other mallow products.
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"This is because it is more likely to be purchased in order to be roasted over a flame.
"The product is typically sold by retailers separately from confectionery and other types of marshmallows.
"It is generally displayed in the 'world foods' section of supermarket aisles, and during the summer months it is generally also displayed in the barbecue section.
"There is no material error of law in the judge's analysis of the evidence and the weight it afforded to the evidence.
"For the above reasons, we find that there is no error of law in the FTT's decision. The appeal is dismissed," the judge concluded.