The Great Marshmallow VAT Mystery: A Sticky Situation for HMRC

In the world of tax, you’d think the biggest disputes would revolve around multi-million-pound corporations, offshore accounts, or complex financial loopholes. But no - HMRC has been locked in a long and sticky battle over whether giant marshmallows are taxable. Yes, you read that right.

Forget Swiss bank accounts, we’re talking about supersized sugary pillows and whether they are, in the eyes of the law, normally eaten with fingers.

And in a plot twist worthy of a legal drama (albeit one sponsored by a sweet shop), the Court of Appeal failed to decide whether giant marshmallows fall into this crucial confectionery category. So, they’ve thrown the case back to the First Tier Tribunal (FTT) for another round.

What’s the Fuss About?

The case involves Innovative Bites, a company that sells mega marshmallows—those huge ones designed for roasting over a campfire. Between 2015 and 2019, the company successfully argued in court that their marshmallows should not be subject to VAT, winning back a sweet £472,928 in the process.

But HMRC, never one to let sleeping tax cases lie, has refused to let this one melt away. Their argument? The marshmallows should be classified as confectionery, meaning they are subject to 20% VAT.

And so began the great debate: do you eat a giant marshmallow with your fingers, or do you need a skewer?

The Court Case: A Toasty Legal Battle

So far, both the First Tier Tribunal and the Upper Tribunal have ruled in favour of Innovative Bites, rejecting HMRC’s argument. But HMRC wasn’t ready to let go (or perhaps, they just really wanted another marshmallow taste test), so they took the case to the Court of Appeal.

At this latest hearing, the judges could not reach a decision on whether mega marshmallows are normally eaten with fingers or whether the use of a skewer changes their fate.

Lord Justice Guy Newey declared: "In the circumstances, the right course must be to remit to the FTT the question whether ‘mega marshmallows’ are ‘sweetened prepared food which is normally eaten with the fingers’."

In simple terms: the legal system still can’t decide whether people eat giant marshmallows by hand or need a stick. So, rather than making a ruling, they’ve sent it back to be reheated in the FTT - with a fresh batch of judges, just in case the last lot were biased towards campfires.

What’s at Stake?

A significant amount of tax is now going to rest on whether the tribunal thinks that a giant marshmallow is normally eaten with the fingers or off of a skewer.

This marshmallow debate isn't just about a single product—it could set a precedent for similar food-related VAT cases in the future. If HMRC wins, other food items that straddle the VAT boundary could come under scrutiny.

But the question remains: how do you define the normal way to eat something? If enough people start eating marshmallows with chopsticks, could they dodge VAT altogether? And if we eat Jaffa Cakes with a spoon, will that finally settle the biscuit-vs-cake debate?

The Absurdity of VAT Laws

This case highlights just how ridiculously complicated UK VAT laws can be when it comes to food. Some foods are zero-rated (no VAT), while others are taxed at 20%. But the rules are full of weird loopholes and arbitrary distinctions—as we’ve seen before with Jaffa Cakes (biscuit or cake?), Pringles (crisp or not a crisp?), and now, giant marshmallows.

We won’t hold our breath for that, but in the meantime, we’ll be watching closely to see if the tribunal comes to a final verdict.

Will they rule in favour of the finger-eaters or the skewer-users? Only time (and potentially another tax tribunal) will tell.

What do you think? Should giant marshmallows be VAT-free or subject to tax? And more importantly - how do YOU eat them? Let us know in the comments! 🍡🔥