Here in New Zealand, we value simplicity and we call things as we see them. A spade’s a spade and a marshmallow is confectionary. However, over in the UK, things are a bit more complicated. Value Added Tax (VAT) is charged on goods and services (like GST is in NZ) but is subject to a number of fiddly and somewhat subjective exemptions. For example, supplies of food used for cooking are zero-rated, meaning no VAT is charged on these products. On the other hand, confectionary is subject to VAT at the standard rate, except for cakes and non-chocolate covered biscuits, which remain zero-rated. Clear as mud so far, right?
Innovative Bites Limited (IBL) is a UK supplier, distributor and wholesaler of candy. One of their products is called a ‘Mega Marshmallow’, a large marshmallow measuring 5cm x 4.5cm. According to the wholesaler, the product is supposed to be roasted over a fire, or put between two biscuits to make a s’more. Between 2015 and 2019 IBL sold these marshmallows with no VAT, on the assumption that their intended use fell within the “food used for cooking” exemption.
After being told they owed £470,000 in VAT, IBL appealed to the tax tribunal, asserting that their marshmallows were not confectionary as they were supposed to be consumed with other foods, or cooked before eating. When taking into account the packaging, the size of the product and where it was positioned in the supermarket aisle, the tribunal eventually agreed that the marshmallows were in fact not confectionary. In his conclusion, the judge stated that if a consumer wanted to eat marshmallows as a snack, they would likely eat smaller, regular ones.