Neil Warren reviews a case concerning a comfy blanket designed for wearing indoors, and considers whether there is scope for more zero-rating of children’s clothing.
In the case of Character World Ltd (TC06634), the first tier tribunal (FTT) had to decide if a “sleeved fleece” was an item of clothing and therefore qualified as zero-rated when sold to children. The tax involved was substantial; HMRC had issued an assessment for £157,579 to cover VAT periods between August 2013 and March 2016.
However, the legislation is flimsy. The part dealing with children’s clothing is based on one sentence; to consider if the items are “articles designed as clothing or footwear for young children and not suitable for older persons.” (Item 1, Group 16, Sch 8, VATA 1994). The key words are “designed”, “clothing” and “young children”.
What is a sleeved fleece?
The first challenge for the court was to understand the appearance and key features of a sleeved fleece which can best be described as a full-length blanket with sleeves, with an opening on the garment which could either be worn at the front or back of the body. Can you picture it?
The fleece garment often includes Disney characters in the designs aimed at children aged between 3 and 10, with pop stars on items for those between 10 and 13. It was accepted by all parties that garments for people aged 14 or over are classed as adult clothing so are standard rated anyway (VAT Notice 714, para 4.2).
HMRC decided that a sleeved fleece is not an item of clothing and described it as a “rectangle of cloth with sleeves”. HMRC also said it could not be worn properly because its length was a “tripping hazard.”
Character World Ltd explained that the intention was for the garment to be wrapped around the body and worn around the house, to give warmth and protection to the user. The incorporation of sleeves meant it was always the manufacturer’s intention for the garment to be “designed as clothing”.
The court ruled in favour of Character World Ltd and concluded that the garment was “more than simply a blanket” and that “it keeps the user warm and can preserve the user’s modesty”.
Some 30 years ago, I was the Customs & Excise (pre-HMRC) VAT officer in charge of the VAT affairs of a major UK retailer, and clothing was their biggest market. We often used to study garments in great detail (helped by tape measures to check various waist, chest and leg measurements) to see if they were zero-rated as children’s clothing. As I recall we never had to deal with the challenge faced by the court in this case, ie whether a garment was actually clothing or otherwise.
Times and fashions have moved forward, so I wonder if there a whole range of garments in the modern market that could be defined as clothes, and therefore zero-rated if the sizes and style are restricted to children?
Three tips to consider
Always focus on the intentions of the manufacturer (usually clear by labelling and packaging) – did he intend the item to be worn as clothing?
What features restrict it to children only – usually size although Disney characters in the material also help.
Can it actually be worn – for example, my gran used to wear a shawl (definitely clothing) but you would never wear an umbrella, even though the latter gives you more protection from the Manchester rain!
Overall, I suspect there could be scope for a bit more zero-rating in the clothing market and it is worth giving it a few minutes thought.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.