VAT On Marshmallows

The starting point for VAT is that sales are subject to standard rated VAT (currently 20%). However sales of food are zero rated , but sales of biscuits and confectionery are standard rated.

A recent VAT case highlighted the complexities of VAT on confectionery. Both HMRC and the manufacturer of marshmallows agreed that marshmallows should generally be standard rated as confectionery.

The manufacturer however argued that the some of the marshmallows should be zero rated, presumably as food. The marshmallows in question were designed and marketed for use at barbeques, to be placed on the end of a stick and melted over a fire. The arguments used by the manufacturer to support its claim were:

a) The marshmallows were significantly larger than ‘normal marshmallows, which were sold as confectionery.

b) The packaging indicated that they were designed to be used at barbeques (however the manufacturer did acknowledge that they could be eaten as confectionery).

c) Sales were seasonal.

d) The marshmallows were sold with barbeques items and not on with confectionery.

Rather surprisingly, the manufacturer has won the case. and hence large marshmallows designed to be used at barbeques and sold in the barbeque aisle are now zero rated.

The question does arise as to what the VAT treatment would be for large chocolate bars, marketed to be melted at barbeques, which had seasonal sales and were sold in the barbeque aisle!

Update to this blog 08 February 2023: HMRC have announced that they are lodging an appeal against this judgement.