This is a case concerning a comfy blanket designed for wearing indoors and targeted at children. But as is often the case in such matters, the VATman disagreed with the company selling the “garment”, deeming it Standard Rated for VAT at 20% and thus the case ended up in the courts.
Background
The firm involved was Character World Ltd, who manufacture various products specifically targeted at babies and children. For most of their products VAT liability was not in dispute, however a range of wearable blankets, known as a ‘sleeved fleeces’ had been zero-rated by them as items of clothing and therefore qualifying as zero-rated when sold to children.
Surprise, surprise, the VAT man disagreed and issued an assessment for £157,579, which Character World strongly disputed and thus the matter ended up before the first-tier tribunal (FTT).
The court had to interpret some decidedly flimsy legislation contained within the 1994 VAT Act, specifically (Item 1, Group 16, Sch 8). This section is the only part of the legislation that specifically deals with children’s clothing and is contained in one single sentence; “are the items articles designed as clothing or footwear for young children and not suitable for older persons.” The key words being “designed”, “clothing” and “young children”.
What exactly is a ‘sleeved fleece’?
The first issue for the court was to understand the appearance and key features of a ‘sleeved fleece’ which is essentially a full-length blanket with an opening in the garment for the head and often for the arms as well. When targeted at adults they often come with an advertising taglines such as; ‘Fleece Blanket With Sleeves, Wearable Throw, Cosy Super Soft Warm Wrap”, but when the target market is children they always market them as either, “Snug rug fleece blanket for kids’ or just ‘sleeved fleeces for children’.
When marketed at children aged between 3 and 10, the ‘sleeved fleece’ often includes Disney characters or cartoon characters and for those kids aged between 10 and 13, they usually feature images of pop stars such as Miley Cyrus and Selena Gomez or characters from Star Wars.
The arguments, for and against
HMRC started by first advising the judge that both parties accepted that any garments for people aged 14 or over are classed as adult clothing so are standard rated in any event.
Then HMRC’s lead counsel launched into their main argument why a ‘sleeved fleece’ is not an item of clothing. He described the ‘sleeved fleece’ as either “merely a rectangle of cloth with sleeves”, or “ simply a rectangle of cloth with a hole in the centre”. He also said it could not be worn properly because its length was a significant “tripping hazard.”
Character World Ltd then countered with the explanation that their intention was for the garment to be wrapped around the body and worn around the house, to give warmth and protection to the user. Also, as most of the range incorporated sleeves, it was clear that the manufacturer’s intention for the garment to be “designed as clothing” and that the garments with just a hole for the head were akin to ponchos.
The court’s decision
- The FTT judge said that there were three main points to consider:
- Were the intentions of the manufacturers clear and did they intend the item to be worn as clothing? This is usually obvious by the labelling and packaging
- What features restrict the item to children only, which is usually by size although cartoon characters on the material also help.
- Can it actually be worn
The judge then 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.”
Accountant’s view
Times and fashions are constantly moving forward, for example last week I saw a couple of 5-year-olds wearing pork-pie hats festooned with Star Wars characters and because of their size, presumably zero-rated. So, I wonder if there a whole range of other garments in the modern market that could be defined as clothes, and therefore zero-rated if the sizes and style are restricted to children?
