The complexities of the exception to the zero-rate for foodstuffs produced perhaps the most infamous VAT case of all, the Jaffa Cake. At the tribunal, the appellant made a giant version of the product to prove it was a cake and zero-rated. Chocolate covered biscuits are standard rated, but cakes, even covered in chocolate, are zero-rated.

Now we have the Mega Marshmallow case. Again, it seems that size is important, but not the deciding factor.

The product is designed to be put on a stick, toasted on an open fire, and then eaten. It was sold in the BBQ aisle of the supermarkets during summer and the World Food aisle for the rest of the year.

On the pack were instructions on how to roast the marshmallows, and make s’mores, a North American campfire treat where a roasted marshmallow and chocolate are sandwiched between two biscuits.

The tribunal noted that “regular marshmallows would not be as effective to make a sʼmore because there would not be sufficient soft inner mallow”, demonstrating that the tribunal had a level of s’mores understanding not previously seen.

The packaging was updated to include a cartoon chef character called ‘baking buddy’.

All these points were examined at some length by the tribunal. It was seen as important that the ‘most likely’ reason a consumer bought the ‘mega’ rather than the ‘standard’ size marshmallow was to roast the product before eating.

In its ruling, the tribunal took the view that the Mega Marshmallows did not have the common characteristics of confectionery (the exception from zero-rating that HMRC was arguing the product fell in to).

Namely; its size was due to the fact it was designed to be put on a stick, so not eaten with the fingers; the main use required a further process (roasting) before eating; and it was not held out for sale with other confectionery.

Therefore, the tribunal saw the product as being zero-rated. This meant that HMRC’s assessment for nearly £500k was incorrect.

It now seems that there are three types of marshmallow and two VAT liabilities, with size being a determining factor. Small marshmallows for cake decoration or putting on top of a hot chocolate, are cooking ingredients and zero-rated. The ‘normal’ size marshmallow is confectionery and standard rated and the Mega Marshmallow is not confectionery so again zero-rated.

It’s important to note that what can seem to be rather frivolous matters can have significant financial implications for business.

Please note that we cannot be held responsible for any adverse reactions if you do use this as an ice-breaker.

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