Don't Mess With Taxes

Photo by Kindel Media

I am not a fan of camping. Bugs. Sleeping on the ground (see bugs).

But I do love campfires, especially when they're used to char marshmallows for s'mores. Apparently so do millions of other people worldwide.

And thanks to a United Kingdom tax ruling, that country's fans of this graham cracker-chocolate-marshmallow treat can continue to enjoy the gooey goodies across the pond sans some VAT, or value added tax, charges.

A U.K. tax tribunal recently ruled that a British food wholesaler of American snacks is not liable for VAT on its product Mega Marshmallows, which are used for making s'mores. The s'more middle ingredient, according to the decision, is not considered confectionery, and therefore is not subject to the tax.

Not-so-sweet tax fight: HMRC — His Majesty's Revenue and Customs since King Charles III took the throne — contended that the oversized marshmallows sold by Innovative Bites, a U.K.-based wholesaler of American snacks, should be standard-rated as confectionery, thereby taxable. The huge marshmallows could be eaten alone as snacks, said HMRC.

Basted on that argument, HMRC in August 2019 issued VAT assessments to Innovative Bites of around £470,000 ($521,066) for the period between June 2015 and June 2019.

Innovative Bites, however, argued the product is intended for roasting over an open flame, rather than for consumption as a snack. The packaging, noted the company, includes instructions for how to properly roast the marshmallow and a description of how to make a s'more.

The First-Tier Tribunal (Tax) agreed with the company.

That ruling also produced this weekend's Saturday Shout Outs, with the following articles offering s'more (sorry, not sorry!) on the case's VAT subtleties.

• HMRC Under Fire for VAT Bill on S’mores Marshmallows from Tax Notes
• Marshmallow ruling helps Loughborough firm in VAT fight from BBC News
• Some imp-s'more-tant news… from Slaughter and May via Lexology
• Marshmallow firm pulls victory out of the fire in tax court battle from The Daily Mail

Determining food taxes: The United Kingdom s'mores fight shows that taxes are as sticky there are here, especially when it comes to food.

Food taxes are dealt with at the state level in the United States. Stories abound about how creative some tax jurisdictions get in determining what food is or isn't taxable.

Most prepared food items are subject to sales tax. However, most U.S. states don't tax food purchased in grocery stores.

And, of course, there's the continuing battle over good food vs. bad food. This is played out in sin taxes on food and/or usually drinks that are deemed unhealthy.

Similar U.K. tax recipes: Convoluted food tax issues, as evidenced in the s'mores case, also are common in the United Kingdom.

Although marshmallows, at least those from Innovative Bites, are not taxable, the other parts of s'mores, chocolate and biscuits (it seems that U.K. grocers don't carry graham crackers as we in the U.S. know them), remain subject to VAT.

Or, as Mike Lane pointed out in his Slaughter and May piece, "Only in VAT-land are giant marshmallows not confectionary whilst the bread in a Subway sandwich, at least in Ireland, is."

You also might find these items of interest:

• U.S. & U.K. share similar tax law complexity problems
• Denmark imposes fat tax
• Lost in tax translation: U.S., European tax source differences
• Raise a glass! U.S. and France reach deal that saves French wines from U.S. tariffs
• Japanese tax officials holding contest to encourage drinking…and alcohol tax collection

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