The Upper Tribunal (UT) has upheld a decision of the First-tier Tribunal (FTT) that 'Mega Marshmallows' are not confectionery and are therefore zero-rated for VAT.

A wholesaler of American sweets and treats which supplied Mega Marshmallows was issued with VAT assessments totalling over £470,000 after HM Revenue and Customs (HMRC) decided that they were confectionery and therefore standard rated. Confectionery is listed as an exception to the zero-rating provisions for food in Schedule 8, Group 1 of the Value Added Tax Act 1994. The wholesaler appealed to the FTT, arguing that Mega Marshmallows did not fall within the definition of confectionery as they were intended to be roasted over a campfire or barbecue before being eaten.

The FTT found in favour of the wholesaler. While Mega Marshmallows bore the fundamental characteristics of confectionery, their size made them particularly suitable for roasting and they were sold and marketed as a product specifically for roasting. They were also found in the barbecue sections of supermarkets during the summer months, when more of them were sold, or in the world foods section.

Challenging that decision before the UT, HMRC argued that the FTT had been wrong to conclude that Mega Marshmallows were not confectionery because they could be roasted. Regular marshmallows were standard rated, and Mega Marshmallows were simply larger. However, the UT found that there was no material error of law in the FTT's analysis and weighing of the relevant factors, and its conclusion was open to it on the facts.

HMRC also argued that the FTT had placed too much weight on how Mega Marshmallows were marketed, and that the seasonality of their sales and their positioning in supermarkets did not show how they were actually used by consumers. HMRC contended that there was no direct evidence that consumers roasted them. However, the UT concluded that how they were marketed was potentially relevant whether or not there was evidence of how they were used, and the FTT had considered a number of factors in inferring how consumers used them. Furthermore, the UT did not accept that it was impossible, on the evidence, to see a correlation between their sales and their being used for roasting. The FTT's conclusions in respect of where they were sold in supermarkets were also open to it on the evidence. HMRC's appeal was dismissed.