There are strict regulations governing the sale of children's clothing, one of the many reasons I have never been tempted to sew items to sell. The Charity Retail Association has produced this document for their members explaining these regulations.
Textile labelling is required by law, and the document states :
The Textile Products (Labelling and Fibre Composition) Regulations 2012 require all textile products to carry a label indicating the fibre content, either on the item or the packaging. If a product consists of two or more components with different fibre contents, the content of each must be shown.
Only certain names can be used for textile fibres and these are listed in the Regulations along with a list of products that are not required to bear fibre content.
All items must carry a label indicating the fibre content, either on the item or the packaging. The label should be durable, easily legible, visible and accessible.
It is an offence to supply, or offer to supply, textile products that do not comply with the above requirements. The maximum penalty is a fine. Therefore, a charity shop selling a home-made item must ensure that a clear label - indicating that it was knitted from a certain type of wool, for example - must be included.
I know many people knit for charity, donating items directly to hospitals and so on, but certainly if they are being sold, then the regulations apply. Although, having said that, I do know our local hospital has a charity run shop selling donated hand-knitted baby clothes and I'm almost certain they aren't labelled as required! Equally, I have given hand made clothing, that my GD has outgrown, to a local charity shop and they have been delighted with it - no labels on them at all!