HMRC has now published Revenue and Customs Brief 10 (2015): VAT – direct marketing services using printed matter, following further consultation with the Charity Tax Group (CTG) and Direct Marketing Association. Members should see also the newly updated versions of VAT Notice: 701/10 zero-rating of books and other forms of printed matter and VAT Notice 700/24: postage and delivery charges.

The Brief explains HMRC’s approach to supplies of direct marketing that have been wrongly treated as zero-rated supplies of delivered goods.  It also sets out those circumstances where HMRC will not take action to assess for past errors, confirming that the transitional period during which the retrospection concession applies will end on 31 July 2015. Importantly, it makes clear that a requirement of these ‘transitional arrangements’ is that the supplier notifies HMRC that they intend to apply the arrangements by 30 November 2015.  It also describes the settlement terms available to businesses whose supplies do not come within the scope of the transitional arrangements.

The Brief also confirms that following further representations from CTG the transitional arrangements will now apply to door drops where it can be demonstrated that the supplier’s service consisted only of the printing and delivery of zero-rated printed matter and the customer has instructed the supplier as to the timing and location of the deliveries. This amendment follows CTG’s earlier successful efforts to persuade HMRC that it is possible to treat certain alterations to the customer address lists (known as “suppressions” for gone aways, deceased and Mail Preference subscribers) as ancillary to the zero rated supply of printed goods. The Brief makes it clear that the inclusion of “suppressions” in what is ancillary to the zero rated supply of printed goods applies both for the past and for the future.

John Hemming, Chairman of the Charity Tax Group, commented:

“It is almost a year since HMRC stated its belief that single source arrangements for the print and distribution of charity mail packs should be treated for VAT purposes as a supply of standard rated direct marketing services, rather than as single composite supply of zero rated delivered goods, as was widely believed in the industry sector. While CTG continues to disagree with this approach, our negotiations with HMRC have led to the production of clear guidance which provides much needed certainty and clarity for charities, saving them millions of pounds in the process. The publication of this Brief and the recent revisions of the guidance signals the end of a long period of negotiations with officials, and we are grateful to HMRC officials for listening to our concerns and for introducing a transitional period and reviewing its scope and length so it is practical and workable for charities. It is important now that print companies are made aware of the scope of HMRC’s transitional arrangements and the time limit for claiming the retrospective concessions and we have produced a standard letter for charities to use to protect their position.”

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Charities should consider sending a letter to their print company unless they are aware that the print company was prepared to bear a resultant VAT cost (which in many cases will be unlikely).

“Dear [insert print company name]

 I am writing to draw your attention to Revenue and Customs Brief 10 (2015), which explains HMRC’s approach to supplies of ‘direct marketing’ that have been treated as zero-rated supplies of delivered goods. 

 This Brief lays out the terms under which a supplier which made supplies that HMRC considers to be standard rated can claim that it was misled by HMRC’s literature and thus avoid, to the relevant extent, being charged VAT on certain supplies taking place prior to 1 August 2015. 

 However, it is a requirement of these ‘transitional arrangements’ that the supplier notifies HMRC in the prescribed way that the supplier intends to apply the arrangements.  The deadline for this notification is 30 November 2015.  Suggested wording is included in the Brief.

 I am drawing this to your attention to ensure that you are aware of this condition and of the importance of ensuring that you take advantage of the concession.  Irrespective of the contractual powers you may have to add VAT when appropriate, we will not accept that such addition is appropriate in any case where the liability could have been avoided by timely notification to HMRC but this notification was omitted.”

The above example could be adapted to apply to the settlements available where the transitional period relief does not apply. Failure to ‘claim’ the settlement deal will cause HMRC to impose VAT on all of the supply on a composite supply basis and this will increase the liability technically capable of being passed to the charity under the contracts. The deadline for accepting the settlements is the same as the deadline for accepting the transitional relief.