Inclusive Definition of Confectionery and VAT Zero-Rating: Establishing the 'Mega Marshmallows' Precedent

Introduction

The case of Revenue and Customs v Innovative Bites Ltd ([2025] EWCA Civ 293) addresses a contentious issue regarding the VAT treatment of a unique food product—"Mega Marshmallows". The core question in dispute was whether the product falls within the definition of “confectionery” as set out in schedule 8 to the Value Added Tax Act 1994 (VATA 1994) or whether it should be classified as “Food of a kind for human consumption” and, as a result, zero-rated for VAT purposes. The case involved HM Revenue and Customs (HMRC) on the one hand and Innovative Bites Limited, the respondent, on the other, with the matter progressing from the First-tier Tribunal (FTT) to the Upper Tribunal and ultimately to the Court of Appeal. The legal debate centers on the interpretation of “confectionery”, particularly the impact of Note (5) attached to Item 2 in Group 1 of the schedule.

At the heart of this dispute is whether the “Mega Marshmallows”, marketed primarily as a product designed for roasting—a process seen to alter the typical mode of consumption—should be considered confectionery. While the FTT found that the marshmallows were marketed and sold in a manner that did not accord with traditional confectionery usage, HMRC argued that the text of the statute, specifically Note (5), was conclusive in treating any product that is “sweetened prepared food normally eaten with the fingers” as confectionery.

Summary of the Judgment

The decision in this case reflects a layered analysis across different judicial levels. Initially, the FTT determined that “Mega Marshmallows” do not fall within the definition of confectionery owing largely to the product’s suitability for roasting and its associated marketing messages. The FTT’s conclusion was that because the marshmallows were specifically promoted for roasting—evidenced by the packaging and associated instructions—they should be considered as a non-confectionery “Food of a kind for human consumption” eligible for zero-rating.

The Upper Tribunal endorsed the FTT’s factual findings but took a more nuanced view regarding the interpretation of Note (5). It described Note (5) as an “inclusive definition” rather than a rigid “deeming provision”, though acknowledging that products that literally fall under its ambit are to be considered confectionery—unless applying such a classification would result in an absurd or anomalous outcome. Notably, the Upper Tribunal observed that the burden lay on the taxpayer to demonstrate that the product is not ordinarily consumed with the fingers.

In the present appeal, HMRC argued that the Upper Tribunal erred by allowing other factors to potentially outweigh the clear statutory language of Note (5). Emphasizing a literal reading, HMRC maintained that if a product fits the description offered by Note (5), it must be considered confectionery. The Court of Appeal ultimately agreed with HMRC’s interpretation, holding that, absent an absurd result, the words of the statute unambiguously dictate that such products are confectionery. As such, the appeal was allowed, and the case was remitted to the FTT (with a differently constituted tribunal) to determine, on the factual record, whether “Mega Marshmallows” are “sweetened prepared food normally eaten with the fingers”.

Analysis

Precedents Cited

The judgment draws upon a rich tapestry of precedents which inform the interpretation of statutory definitions. Notable among these is the case of Wm Morrison Supermarkets plc v Revenue and Customs Commissioners [2024] UKFTT 181 (TC), where the tribunal clarified the role of Note (5) as one of inclusive definition rather than a mere presumption. Other precedents such as Revenue and Customs Commissioners v Premier Foods Ltd [2007] EWHC 3134 (Ch) and earlier decisions referenced in Bennion, Bailey and Norbury on Statutory Interpretation, including the classic cases of Dilworth v Commissioner of Stamps [1899] AC 99 and Thomas v Marshall [1953] AC 543, were pivotal in establishing the principle that words governed by an “include” clause incorporate both their ordinary meaning and the additional scope declared by statute.

The Court of Appeal underscored that the statutory notes attached to schedules in VATA 1994 pertain to both clarification of uncertain boundaries and the avoidance of potentially absurd results. Thus, while the FTT’s findings about the product’s consumption may depart from ordinary assumptions about confectionery, the language of Note (5) remains decisive when read in light of previous rulings.

Legal Reasoning

The crux of the legal reasoning rests on the interpretation of Note (5) to Group 1 of schedule 8 to VATA 1994. The Court had to balance:

The literal meaning of the statutory text, which indicates that “confectionery” includes “chocolates, sweets and biscuits; drained, glacé or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers.”
The contextual analysis of how the product is marketed and consumed, notably that “Mega Marshmallows” are primarily intended for roasting.
The principle that statutory definitions must not lead to absurd results. In the case of products such as “cooked sweet chilli flavoured chicken skewers”, it would be absurd to classify them as confectionery, and yet the statutory language must be enforced unless such a result clearly arises.

The Court concluded that, subject to the exception for absurdity, if a product fits within the descriptions provided by Note (5), it should be treated as confectionery for VAT purposes. This necessitated a remittal for a factual determination on whether “Mega Marshmallows” are indeed “normally eaten with the fingers”, thereby implicating whether the relevant burden on the taxpayer had been met.

Impact

The implications of this judgment are significant for both VAT jurisprudence and the food industry. By reaffirming that the inclusive nature of statutory definitions (as evidenced by Note (5)) holds sway over conflicting commercial usage or marketing evidence, future disputes over the classification of food products could be streamlined. Manufacturers and traders will need to consider how product presentation, packaging, and consumer usage pattern interact with the precise statutory language.

Additionally, the decision sets a clearer precedent for the interpretation of “confectionery” within the statutory framework, reducing uncertainty for both HMRC and businesses. It reinforces that the legislative intent—codified through precise language—should be the primary guide, unless a literal application would produce an absurd or anomalous result.

Complex Concepts Simplified

One of the more challenging issues in the judgment was determining how to interpret “Note (5)” attached to the definition of confectionery. Essentially, there are two views:

Some argued that Note (5) is a “rebuttable presumption” that may allow for other factors to alter the classification of a product.
Others, as ultimately favored by the Court of Appeal, contend that Note (5) is an “inclusive definition” that broadens the natural meaning of “confectionery” to include all products that can be seen, by their plain wording, as sweetened food eaten with the fingers—unless such reading leads to absurd results.

To put it simply, if a product is labeled or can be reasonably understood as a sweet that one would generally eat with their fingers—without any additional preparation (like roasting)—then the statutory language compels its classification as confectionery, making it subject to standard-rated VAT. The judgment emphasizes that only when the result is absurd (for instance, misclassifying a savory product that is clearly not intended for casual finger-eating) can deviating evidence warrant a different conclusion.

Conclusion

In summary, the Court of Appeal’s decision in Revenue and Customs v Innovative Bites Ltd establishes an important precedent on the interpretation of confectionery within the VAT regime. The judgment affirms that the statutory language—particularly the inclusive wording of Note (5)—must be given its full effect. This means that unless applying this literal interpretation results in an absurd outcome, products that are sweetened and normally eaten with the fingers are to be classified as confectionery and therefore standard-rated.

The case is being remitted to a differently constituted First-tier Tribunal for a factual determination on whether “Mega Marshmallows” are normally eaten with the fingers. This remittal underscores the necessity for concrete evidence regarding consumer behaviour in tandem with statutory interpretation.

For legal practitioners, businesses, and tax authorities, this judgment offers clarity on the application of VAT zero-rating rules and reinforces the primacy of legislative intent in the interpretation of statutory definitions. Overall, the decision will have a far-reaching impact on future cases involving product classification under tax law.