VAT ANOMALY IN THE EMBROIDERED CLOTHING INDUSTRY

There are many business’s both large and small that have fallen foul of unclear VAT rules.

Today a court case ruled that smoothie manufacturer, Innocent, must pay VAT on its products following a legal challenge by the business. This well known smoothie brand had argued that because its product is made entirely of fresh fruit, which along with many food products presently does not attract VAT, then neither should they. The court judgement decided that the due to process of turning the fruit into a drink, it did ADD VALUE to the product and should therefore be subject to VAT.

There are many other VAT anomalies, mainly within in the food industry over which arguments and court cases have taken place. One example was Jaffa Cakes. Since cakes do not attract VAT but biscuits do, McVities, the makers argued that the Jaffa Cake was indeed that, a cake and not a biscuit. An argument they duly won. Not so successful were Proctor and Gamble the makers of Pringle crisps. They had argued that as both chips and jacket potatoes were not subject to VAT even though they had been processed to a greater or lesser degree from the humble potato then neither should the crisp. This was not upheld and Proctor and Gamble lost their case and the Pringle crisp sold in almost every supermarket in the country is more expensive as a result.

So how is the embroidered clothing industry affected by VAT rules and regulations? One area that has been debated over recent years is whether, or not embroidered children’s clothing should be VAT exempt. All children’s clothing does not attract VAT but what happens when that item of clothing is decorated using embroidery. Does this add value to the product? Most would say it does, but it still remains an item of children’s clothing.

JKL Clothing have continued to adhere to the VAT rules and regulations as they see them by separating any invoice for embroidered children’s clothing, charging the clothing item at zero rate VAT and itemising a separate charge for the embroidery, making that item of the invoice subject to the normal VAT rate, currently 17.5%.

Jeff Harris, JKL Clothing MD, comments, “We feel that the law regarding VAT and embroidered children’s clothing remains unclear and until it is challenged and a definitive judgement made we will air on the side of caution and make all embroidery whether onto children’s clothing or not subject to the appropriate level of VAT”