HMRC is looking for another bite in the ‘Mega Marshmallow’ tax case

After losing twice in the long-running ‘mega marshmallows’ tax case, HM Revenue and Customs (HMRC) has announced it will appeal again.

Last month, the Upper Tax Tribunal upheld a lower tribunal’s ruling that ‘mega marshmallows’ sold by London wholesaler Innovative Bites are not considered confectionery and are therefore exempt from VAT.

The case revolves around the classification of ‘mega marshmallows’ for VAT purposes. The Upper Tax Tribunal agreed with the lower tribunal’s findings that the product was marketed and sold specifically for burning, and that its large size distinguished it from smaller standard value marshmallows.

Despite these rulings, HMRC remains of the view that ‘mega marshmallows’ should be classified as confectionery and subject to standard VAT. On Thursday, HMRC updated its VAT appeals and stated that it is seeking permission to appeal the decision, continuing its argument against the current classification.

Glyn Edwards, VAT director at accountancy firm MHA, expressed his surprise at HMRC’s persistence: “We all thought this was the end of the giant marshmallow tax debate, but HMRC have decided to appeal again in the hope of convincing the tax authorities finally convinced that size is not everything.”

Edwards also raised concerns about public perception of this protracted legal battle: “The general public might wonder whether this is really the best use of taxpayers’ money, when we all know that understanding the VAT dividing lines on food has defeated the best legal divides. ghosts for decades.”

Jilly McCullagh, director of the VAT consultancy working with Innovative Bites, echoed this sentiment, calling HMRC’s decision ‘disappointing’. She questioned the practicality and financial utility of continuing the appeal: “Is this really in the best interests of taxpayers’ money? Where and when will this stop?”

An HMRC spokesperson confirmed the department’s intentions: “We are seeking permission to appeal the decision of the Higher Tribunal to the Court of Appeal.”

As HMRC seeks a new round in the ‘mega marshmallows’ tax case, the debate over the classification of the product and the use of public funds in protracted legal disputes continues. With the Court of Appeal as the next potential battleground, the final resolution of this VAT issue remains uncertain.