Tribunal upholds VAT zero-rating for Mega Marshmallow

An appeals court has upheld a VAT exemption for Mega Marshmallow, an American food product distributed by World of Sweets, ruling that the product cannot be considered as confectionery.

While confectionery products are subject to VAT, products intended for use as ingredients are generally exempted. Compared with other marshmallows which are typically classed as confectionery items, Mega Marshmallows are designed and marketed as an ingredient for toasting and using in S’mores, a traditional American campfire treat.

As the oversized Mega Marshmallows are meant to be roasted and the packaging and product itself did not suggest it was intended to be eaten on the go, it qualifies for a VAT exemption for food, the Upper Tribunal ruled early this month.

The ruling came in an appeal by the HMRC against the verdict by First-tier Tribunal (Tax) in favour of World of Sweets in 2022.

The sweet distributor approached the tribunal after the tax agency in 2019 told them to pay £473,000 of uncollected VAT on historical sales of their zero-rated Mega Marshmallow product and that it must begin charging VAT to its customers.  

Between 2015 and 2019, World of Sweets treated sales of Mega Marshmallows as zero-rated for VAT purposes.

The upper tier tax tribunal heard the appeal in November 2023 and the verdict recently announced means that consumers will once again be able to benefit from not paying VAT, in line with the majority of food products.

“We are really happy to celebrate the outcome of the appeal which says the original verdict on the Mega Marshmallows stands – making the product zero-rated,” Helen Bradshaw, sales and marketing director at World of Sweets, said.

“The products are an example of a great American tradition – S’mores. We have seen a huge trend for American food items among retail customers. The drive for American products, flavours and trends has helped independent stores and convenience retailers to maximise on sales.

“This final ruling will help retailers, including cafes, fairgrounds and the broader leisure industry, hoping to bring the best value to their customers.”