Heat oven to 180 degrees C. Grease or line a muffin tin.
Mix together butter, sugar vanilla and milk. Stir in flour then beat until smooth. Spoon batter into muffin cups until half full, add the caramels in the middle then spoon in the rest of the batter until the tin is full.
Bake in preheated oven for about 20 minutes. Allow to cool on a cooling rack before icing.
For marshmallow cupcakes, substitute the toffee for a marshmallow.