HMRC Ends Jumbo-Marshmallow Appeal After Tribunal Finds Product Not Normally Eaten with Fingers

Summary 

• HMRC will not appeal the latest Innovative Bites decision concerning large marshmallows. The remitted First-tier Tribunal found that the product was not normally eaten with the fingers and therefore did not fall within the statutory confectionery wording. The taxpayer’s appeal succeeded, leaving the product within the zero-rated food treatment considered. 

• The Tribunal examined four consumption methods: from a skewer, removed from a skewer and eaten by hand, incorporated into a s’more, or eaten directly from the packet. It treated skewer consumption and eating a s’more as methods not involving eating the product itself with fingers, then compared their relative frequency. 

• The outcome remains highly fact-specific. Food businesses should not rely solely on sweetness or product category. Size, intended use, packaging, marketing, supermarket placement and actual consumption evidence can influence classification. Product files should document these features, while new recipes, pack formats and marketing changes should trigger reassessment of the applicable. 

Extended article 

HMRC will not appeal the latest First-tier Tribunal decision in the long-running Innovative Bites dispute over large marshmallows. The case concerned whether the product was standard-rated confectionery or zero-rated food. Under Note 5, confectionery includes any sweetened prepared food normally eaten with the fingers. The litigation returned to the First-tier Tribunal after the Court of Appeal held that the taxpayer carried the burden of showing that the product was not normally eaten with the fingers. The parties identified four consumption methods: eating the roasted marshmallow from a skewer; removing it after cooling and eating it by hand; putting it between 

biscuits with chocolate as a s’more; and eating it directly from the packet. The parties agreed that eating from a skewer did not involve fingers and that the second and fourth methods did. The dispute concerned the s’more. The Tribunal concluded this was not eating the product with fingers because the consumer held the biscuits, or because the marshmallow had become an ingredient in a separate s’more. The Tribunal then compared the two non-finger methods with the two finger methods. Using the evidence and an algebraic formulation, it concluded that skewer consumption exceeded removed-and-hand consumption, while s’more consumption exceeded direct-from-pack 

consumption. Accordingly, the non-finger methods predominated and the product was not normally eaten with fingers. HMRC’s decision not to appeal leaves the taxpayer successful. However, the reasoning does not create a general zero rate for marshmallows. Classification depends on the specific product, evidence and statutory wording. Manufacturers and retailers should maintain a product evidence file covering dimensions, formulation, packaging, marketing, sales channels, shelf placement, seasonality and consumer use. Changes in size or promotional message may alter the analysis. Businesses should also distinguish the legal test from broad commercial categories: a sweet product is not automatically confectionery, while intended use alone. 

Official and external sources: UK legislation: VAT Act 1994 | UK tax tribunal decisions 

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