H & M Hennes Ltd v Customs and Excise [2004] UKVAT V18698 (16 July 2004)

18698

ZERO-RATING – children’s’ clothes – whether all clothes designed for a child age 10 and scaled-up to fit a child age “13+” of height 164 cm, which is greater than the Commissioners’ guidelines, qualify – no – appeal dismissed 

LONDON TRIBUNAL CENTRE

	H & M HENNES LIMITED	Appellant

-	and –

	THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

			Tribunal:	 DR JOHN F AVERY JONES CBE  (Chairman)
					 SANDI O’NEILL

Sitting in public in London on 27 and 28 May 2004

Emma Noble, solicitor, Ernst & Young LLP, for the Appellant 

Caroline Neenan, counsel, instructed by the Solicitor for the Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DECISION

1.	This is an appeal by H & M Hennes Limited against a letter ruling dated 9 July 2001 (and confirmed in letters dated 18 March 2003, 12 June 2003 and 29 July 2003) that clothes for children 164 cm in height were not zero-rated.  The Appellant was represented by Miss Emma Noble, and the Commissioners by Miss Caroline Neenan.

2.	The issue in the appeal is essentially whether all clothing, rather than any particular clothing, for children 164 cm in height which is designed for a child age 9 to 10 and then scaled-up can qualify for zero-rating under Item 1 of Group 16 of Schedule 8 to the VAT Act 1994: 

“Articles designed as clothing or footwear for young children and not suitable for older persons.”
3.	We heard evidence from Ulrika Brunnberg (marketing manager of the Appellant), Malin Lillsunde (designer of children’s wear for the Appellant), Liz Sower (children’s wear merchandiser of the Appellant), and Stuart Atkins (responsible for VAT liability for the Commissioners’).  Two witness statements by Customs officers, Julie Manly and Hazel Jordan, were also in evidence and not objected to.  We also had the benefit of a visit to the Appellant’s store in Kensington High Street.  We find the following facts:

(1)	For marketing purposes the Appellant divides the market into those for children from 18 months up to “13+” (which purely for convenience and without implying any pre-judgment of this case we shall call “children”, and from 16 to 24 (which we shall call “young adults”).  At some time in the past the upper limit for children of 13+ was replaced by age 14 (as in the Appellant’s annual Report for 2000) but it has since been changed back to 13+.  The children’s range, such as “Dubbster” and “LOGG”, is marketed to mothers, and the young adult’s range, “Divided”, is marketed to the young adult with advertising in appropriate magazines.  The models in advertisements for the children’s range are generally aged 7 to 9, never older than 10, and are clearly children.  The Appellant’s witnesses understood 13+ as meaning a tall 13 year old, which we do not accept.  We consider that a normal meaning includes a child past his or her 14th birthday.
(2)	When designing clothes for children the designer starts with a 10 year old (height 140 cm) and designs for such a child.  This design is scaled up and down with the proportions remaining constant.  The limit for scaling-up is to age 13+ which is a child with a height of 164 cm.  The Appellant has a deliberate policy to design children’s clothes to appeal to parents and to be safe, comfortable, practical, un-provocative and functional.  The young adults’ range is more fashion conscious and changes more frequently as does their display.  Design for children’s wear is carried out independently of trends in the young adult’s range.  Children’s clothes are designed for pre-pubescent children.  Adults are different in shape.  For example, the Commissioners’ limit for a girl’s chest, waist and hip is 85, 69, 90 cm; the Appellant’s 13+ measurement is 82, 67, 89 cm.  Adult size 8 is 80, 64 and 88 cm, showing a difference between chest and waist from the 13+ measurements of 15 cm and for adult size 8 it is 16 cm, and between waist and hips of 22 and 24 cm respectively.  Clothes designed for young adults are fitted to the adult shape.
(3)	In the Appellant’s shops in general, and as seen by us in Kensington High Street, children’s and young adult’s ranges are not shown in adjacent areas.  In Kensington the young adult’s range is just inside the main entrance on the ground floor, and the children’s in the lower ground floor.  This is because young adults do not want to be seen near the children’s clothes section.  Instructions about how to display children’s wear in stores are contained in a Departmental Guide which is updated monthly for each product line.  This deals with such matters as colour combinations, trend and styling, wardrobe display and hanging systems.  
(4)	Clothes are marked with sizes in centimetres.  Because this is not fully understood in the UK (and US) markets there are charts displayed near the goods and in fitting rooms with ages against each size from 18 months and then each year from 2 to 13 and then 13+; for example age 13 is height 158 cm.  There are also height measurements in centimetres on mirrors that the child can stand against.  The label inside the garment will have the age marked on it whereas the price label will just state the size in centimetres.
(5)	The Appellant operates in many countries and the clothes and size markings are standard throughout.  Marketing strategy is determined by the Head Office in Stockholm.  There are normally four children’s wear marketing campaigns per year.  Guidance is given about advertising both in-store by means of posters and window displays, and externally by press advertisements and catalogues. Some of the in-store promotions are competitions and events aimed at children.  The Spring 2004 campaign includes a competition with entry rules limiting entry to children aged 7 to 13.
(6)	The Commissioners’ practice is set out in Notice No.714 which was last updated in March 2001 following consultation with the trade led by the British Retail Consortium, and including some large stores and other representative bodies.  The Appellant is not represented on these bodies.  When the latest changes were announced the British Retailers Consortium issued a press release on 8 March 2001 welcoming the change and stating “BRC has been campaigning to change the outdated size charts for several years and yesterday’s budget provided recognition that children are growing larger sooner.”  The Commissioners regard a young child as one up to their 14th birthday.  The Notice sets out the maximum sixes of various garments for zero-rating, secondly sets out maximum sizes of children to qualify, of which the relevant maximum is currently a height of 161 cm for girls and 163 cm for boys.  The sizes were determined from a Government health survey of children in 1995 to 1997 and material supplied by retailers.  We were shown information from three retailers (anonymised) which show heights at 14th birthday (or in one case age 13-14) for boys of: 162.6, 158 and 160 cm, and girls of: 161.7, 158 and 158 cm.  As we read the Health Survey for England 1995–1997 for boys and girls at age 13 (which we interpret as meaning a sample between their 13th and 14th birthday), we understand that the average (mean) height of boys was 160 cm (median 159 cm) and that 90 percent of the sample population were between 146 cm and 175 cm.  Girls had an average height of 158 cm (mean and median) and 90 per cent of the sample population were between 146 and 169 cm. Finally, if a trader approaches the Commissioners in advance with evidence showing that larger items are suitable only for children up to their 14th birthday it is possible for the Commissioners to clear them as zero-rated.  Mr Atkins said, and we accept, that this was extremely rare.  The only example he gave was that school uniform including a school logo for a school taking pupils up to their 14th birthday.

4.	Miss Noble for the Appellant contends that the only test should be the statutory one of whether it was designed for young children.  An arbitrary age should not play a part.  As the Tribunal said in Jeffrey Green & Co Ltd v Customs and Excise Comrs [1974] VATTR 94: “The phrase ‘young children’ is one of considerable width.  We do not find it necessary to attempt a definition thereof certainly not by age alone and certainly not by size alone because different children reach different stages of development at different ages.”  And in Walter Stewart Ltd v Customs and Excise Comrs [1974] VATTR 131 the Tribunal concluded that: “fundamentally this is a matter of the intention of the manufacturer.”  Here the method of designing for a 10 year old, height 140 cm and then scaling up and down with the same design throughout the range demonstrates that the clothes are designed for young children.  The 164 cm height is designed for the taller 13 year old.  Adults are a different shape.  A purposive interpretation is to apply the zero-rating to all dependant children of compulsory school age.  On the second part of the test, that the clothes are not suitable for older persons, this is demonstrated by the marketing and advertising methods. 

5.	Miss Neenan for the Commissioners contends that the Appellant’s design and marketing arrangements are not aimed at defining who is a young child.  The test is not one of compulsory school age or pubescence.  The proper approach is to consider factors such as size, fashion, style and general appearance of specific articles of clothing, as the Tribunal did in Dauntgate v Customs and Excise Comrs (1993) VAT Decision 11663.  Here the attack is on all clothing of a certain size, the age 13+ size (formerly referred to as age 14).  These are not designed for young children and are suitable for older children of age 14.  There is nothing inherently childish about the design that would make it unsuitable for a 14 year old, as was the case with riding hats marked “kids own” in Charles Owen & Co (Bow) Ltd v Customs and Excise Comrs [1993] VATTR 514.  The Commissioners’ policy is rational, has been in force for a long time and has been accepted by the Tribunal in a number of cases.  They are open to claims to vary it in specific cases.

Reasons for our decision

6.	Effectively Miss Noble is attacking the existence of the Commissioners’ policy based on maximum height of children up to their 14th birthday.  She contends that a better test is solely one of design for pre-pubescent children.  This makes a lot of sense in design terms.  The designer designs for a 10 year old (height 140 cm), who must on any basis be a young child.  The maximum scaled-up size is for a child with a height of 164 cm which, she contends, demonstrates that this is also for a young child.  The reason why we do not accept her contention is that we consider that it aims at making a distinction between children and adults, rather than the statutory distinction which is between young children and older persons.  It may be that puberty occurs today around the 13+ time, but the statutory test does not depend on puberty or shape; the question is: was it designed for young children?  For a provision in tax legislation, even for a relieving provision, Item 1 of Group 16 is unusually vague.  The Commissioners have laid down a limit of the 14th birthday from which they will not allow any departure.  So far as the size of clothes, or of a child up to that age, they have operated the zero-rating by means of a policy agreed with trade associations and leading retailers, which leaves open the possibility of departing from the policy if a specific case can be made out.  In doing so the Commissioners need to err on the generous side otherwise they (and no doubt the Tribunal) will be inundated with requests for special treatment.  As it is, the Commissioners hardly ever have requests for different treatment.  

7.	However attractive are Miss Noble’s arguments based on the design of the clothes being the same for children from 18 months to 13+, ultimately the question is one of drawing a line for someone ceasing to be a young child.  If we had considered that the Commissioners were adopting a wrong test it would be open to us to say that as a matter of construction of the statute it was wrong.  But we would not wish to say anything suggesting that 14th birthday is a wrong dividing line.  We do not consider that the ordinary person would describe a 14 year old as a young child.  If anything, the 14th birthday limit seems generous.  It has been consistently applied since the start of this zero-rating in 1973 (and before that for purchase tax) and there are a number of Tribunal decisions which have accepted it.  For example, Walter Stewart Ltd v Customs and Excise Comrs (1974) VATTR 131, 135: “We are prepared to accept 14 years as being reasonable in the case of a girl’s overcoat…” Charles Owen & Co (Bow) Ltd v Customs and Excise Comrs [1993] VATTR 514, 519: “In relation to hats I see no good reason for departing from the tribunals’ views in relation to other garments, and I hold that, in relation to hats, for the purposes of item 1 a young child is one who has not attained the age of 14 years.”  If one accepts this age as the maximum age for a young child there is then the issue of whether the height limit is suitable.  The statistics we have seen show that the size limits are suitable to an average child up to his or her 14th birthday; indeed they are larger than that proposed by some retailers.  By the nature of such a test it cannot cater for the very tall child: 5 per cent of 13 year olds are 175 cm (boys) and 169 cm (girls) which is well above the Commissioners’ limit and this is a figure for age 13 and not the time of their 14th birthday.  The 164 cm size is not designed for young children and is suitable in size for a 14 year old.  We agree with Miss Neenan that there is nothing inherently childish about the designs of the clothes that we saw that would make them unsuitable for a 14 year old.

8.	Accordingly we dismiss the appeal.

J F AVERY JONES

CHAIRMAN

LON/03/778

CHAIRMAN

RELEASED:16/07/2004

LON/