Baby blankets and shawls

[Blanketman]

Hi,
could anyone help determine whether a cellular baby blanket for newborns that can be used as a swaddle is zero VAT rated, please? The guidance on what constitutes kids clothing is vague, but does include “shawls”. The most relevant tribunal seems to be Snugglebundle from 2015. Any help would be much appreciated

[Trevor S]

First question – are you buying these from a UK VAT registered supplier? If so, I would follow the same VAT treatment as your supplier has.

But if you’re either the manufacturer or importer, you’ll need to determine the liability. I would start with the law – which is even vaguer than the guidance! Item 1, group 16, schedule 8 of the VAT Act simply zero rates “Articles designed as clothing or footwear for young children and not suitable for older persons.”. The strict test is whether your product would be considered to be “designed as clothing”.

HMRC have guidance in paragraph 2.2.1 of public Notice 714 (https://www.gov.uk/guidance/vat-on-young-childrens-clothing-and-footwear-notice-714#section2) and in their internal manual VCLOTHING2400 (https://www.gov.uk/hmrc-internal-manuals/vat-clothing/vclothing2400). The internal manual focusses on two cases from the 1970’s which considered the function of the item to be the important factor.

You mention the Snugglebundl tribunal (https://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j8188/TC04209.pdf). Although as a first tier tribunal case it doesn’t set a precedent, it’s useful as it’s far more recent while still considering the earlier decisions in the analysis.

Obviously you’re best placed to know the product itsef, and may have other relevant material (e.g. how it is marketed, what brief was given to the designer, etc.). If having considered both pieces of HMRC guidance you’re still unclear of how they’d view it, you’ve got two options:

• You could reach a view by applying the principles set out in the Snugglebundl decision. If you believe that zero rating does apply, make sure that you fully document your reasoning – as this will help protect against a penalty should HMRC later disagree with your view.
• You could request a “non-statutory clearance” from HMRC (https://www.gov.uk/guidance/non-statutory-clearance-service-guidance). This will take much longer, but will give you a formal ruling that you can rely on.

In my opinion, the option to take depends on the significance of the amounts involved and degree of uncertainty after considering the HMRC guidance.

[Blanketman]

Wow! Thank you for the comprehensive and valuable advice. This is extremely helpful. We are the designer and importer so it’s up to us to decide. You’ve articulated the decision very well. My preference is to get clarity before we get VAT registered give implications to the sales price and cash flow if there’s a subsequent challenge. If anyone has experience of getting non-statutory clearance for children’s clothing, I would be really interested to hear how.

[Trevor S]

Something to consider – presumably Snugglebundl didn’t get a clearance. If they had, HMRC would have told them to charge VAT. So although they had to go through the tribunal process, they’ve ended up with a better result than they would have got from a clearance. For your product, being the designer should enable you to demonstrate what it has been “designed as”. If it has been designed as clothing, looks like clothing and is marketed primarily as clothing, you may have a strong case for zero rating anyway.

The clearance route would be most appropriate if you still have real doubt over the correct VAT treatment. I believe that to get a clearance you do need to explain how you’ve considered existing guidance and that still leaves the correct treatment in doubt. If you don’t hear from anyone with experience in children’s clothing clearances on this forum, your accountant might have contacts who could recommend someone.

For completeness, there is a third option – HMRC have a Written Enquiries Team that you could contact. But I suspect they may just refer you to the two pieces of guidance that I already have, leaving you to decide for yourself how they applied to your product – if so, that won’t really help.

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