VAT Food Nuance! (April 2026)

The question of whether a marshmallow is confectionery may sound trivial, but for one wholesale business it carried a VAT liability of nearly half a million pounds. The First-tier Tribunal has now issued its final decision in the Innovative Bites Ltd case, confirming that Mega Marshmallows are zero-rated general foodstuffs rather than standard rated confectionery.
 
The case has a relatively lengthy procedural history. HMRC assessed the business for £472,928 on the basis that the product fell within the definition of confectionery. The FTT originally found in the taxpayer's favour, with the Upper Tribunal affirming that decision. HMRC appealed to the Court of Appeal, which identified an error in the FTT's original reasoning - not on the outcome, but on the analytical framework applied.
 
The Court of Appeal confirmed that confectionery can be established under one of two limbs: either the product meets the ordinary public perception of a sweet, or it satisfies a specific extended definition within the VAT legislation - namely, that it is sweetened prepared food normally eaten with the fingers. The lower tribunals had addressed the first limb without making a clear finding on the second. The case was remitted to the FTT with a focused instruction to determine that single question.
 
On remittal, the FTT considered evidence from the earlier hearings. The product's size was held to make it primarily suitable for roasting rather than snacking. Packaging and marketing consistently promoted roasting use, and the tribunal concluded that a consumer seeking a confectionery snack would be more likely to purchase standard-sized marshmallows. Mega Marshmallows were therefore not normally eaten with the fingers, and the second limb of the confectionery definition was not satisfied.
 
The result is a zero-rating confirmed across both limbs, and a VAT recovery of close to half a million pounds for the taxpayer.
 
The case is a useful illustration of how the VAT treatment of food products turns on precise statutory definitions rather than common sense categorisation. A product that most people might instinctively consider a sweet can fall outside the confectionery definition entirely, depending on how it is marketed, packaged, and consumed. Businesses selling food products with cross-category characteristics - or with a genuine dual-use purpose - should consider whether the VAT treatment currently applied is correct.