HMRC has launched a sustained campaign to widen the definition of ‘confectionery’ for VAT purposes, and the Courts are increasingly siding with them. What began as isolated disputes over niche products has snowballed into a fundamental shift in how ‘sweet’ items are treated, with far-reaching consequences for food producers, wholesalers and retailers.

The outcome as established by the Courts in multiple decisions is clear: products long considered as zero-rated ‘cakes’ or similar baked goods are being reclassified as confectionery, subject to the standard rate of VAT: 20%. This difference can significantly impact margins, pricing strategies and even product viability.

The issue broke into mainstream conversation this summer when Marks & Spencers’ Strawberries & Crème ‘sandwich’ became a viral talking point. Was it a sandwich, a cake, or something else entirely? The debate was light-hearted, but it highlighted a serious reality: HMRC is increasingly arguing that such products fall within the statutory definition of confectionery, and the courts are agreeing.

The expanding definition

At the heart of this change is a single explanatory note in VAT law, which defines confectionery as: “Chocolates, sweets and biscuits; drained, glace or crystallised fruits; and any item of sweetened prepared food which is normally eaten with the fingers.”

The final phrase is now decisive. HMRC sees this (in a stance supported in the Courts) as a ‘deeming provision’. If a product is sweetened and normally eaten with the fingers, it is now confectionery by default for these purposes, regardless of other considerations such as real or perceived healthiness profile, packaging, marketing or in-store placement.

As above, recent case law has overwhelmingly supported this view. Unless applying the definition would create an absurd result, for example, by treating sweet chilli chicken skewers as confectionery, the Courts have upheld HMRC’s arguments. Even the now-famous ‘mega marshmallow’ dispute turns on a simple question – are they eaten with the fingers, or only roasted on a stick? If the former, they are taxable at 20%.

A more aggressive HMRC stance

Encouraged by its success in the Courts, HMRC has stepped up its activity here. In recent weeks, it has issued ‘One to Many’ letters to producers, wholesalers and retailers, urging them to submit error correction notices outlining potential underpayments across their product lines, going back four years.

This is not a routine compliance nudge. The language of the letters makes clear that HMRC considers errors to have been made, and disclosure of these now will lead to leniency on penalties and interest. This represents a significant escalation in HMRC tone and strategy, placing the onus directly on businesses to disclose historic VAT errors, which in reality may not have taken place.

Producers, wholesalers, and retailers – what should you do next?

1. Track the timeline of case law – understanding when particular products were considered in the Courts, and at which level is critical to assessing historic liability.

2. Review prior HMRC correspondence – past clearance or reliance on HMRC conduct may form a defence against retrospective assessments.

3. Audit the full product file – do not simply focus on items highlighted by HMRC. A broader review may help identify mitigating factors and reduce exposure.

4. Explore legal and technical grounds for challenge – blanket acceptance of HMRC’s interpretation is not always the correct approach. Strong counter-arguments still exist.

Looking ahead

The expansion of the definition of confectionery represents a fundamental change in HMRC policy. While the M&S sandwich debate captured headlines, the real focus should be on HMRC’s concerted effort to shift the boundaries of what counts as taxable, and the Courts’ willingness to back that shift.

For food producers, wholesalers and retailers, the implications are serious. The historic treatment of products as being zero-rating can no longer be relied upon, and retrospective liabilities could prove costly. Those who move early, audit carefully and respond strategically will be best placed to manage both financial and reputational risk.

At Johnston Carmichael, we are already working with businesses of all sizes, from independent producers to multinational retailers, to assess exposure and build robust defence strategies based on primary law, case law and other key principles.

The lesson is clear – waiting is not an option.