Notice 700/24 has been clarified following review from HMRC and now says that where a company supplies a charity with services such as data handling or the posting of direct mail and printing, that counts as a supply of direct-marketing services and the whole thing is liable for VAT. However, if the services are provided under separate contracts, some might not attract VAT.

HMRC has outlined the transitional arrangements in Business Brief 10/15, effective 1 August 2015, in respect to the VAT liability of direct marketing services. Direct marketing via mail (addressed or unaddressed) or inserts in newspapers or magazines typically involves the production or acquisition of printed matter for distribution and any or all of the following services:

• posting or arranging the posting of customer mail such as publicity, advertising material or promotional goods to many recipients, including unaddressed mail (known as door drops)
• analysis or manipulation of data (either provided by the customer or sourced directly) for strategic or marketing reasons – for example, to target direct mail at specific groups based on geography, socio-economic factors or gender of recipients
• purchase or rental of third party mailing lists, including for amalgamation with customer’s own lists
• analysis of own and customer data to produce reports on campaign results and advice on strategy.

When any of the services listed (or other marketing related services) is supplied with printed matter as a single supply it is taxable at the standard rate because it is a supply of direct marketing services.

Certain services may still continue to qualify as ancillary to the supply of zero-rated printed matter. These include:

• the creative design, drafting and preparation of printed matter
• the printing of direct mail packs using pre-sorted or unsorted data provided by the printing supplier’s customer, so that the mail packs include names, addresses, postcodes and barcodes
• the printing of direct mail packs and correction of data supplied by the printing supplier’s customer – data correction includes only:
  • amendment in accordance with Royal Mail address format guidance
  • amendment to comply with the requirements of the Mail Preference Service and
  • removal of ‘gone-aways’ and the deceased.

The supply of printed matter and any services separately may comprise multiple supplies; and in that case each component is taxed according to its VAT liability. An example of multiple supplies occurs where a supplier provides marketing strategy advice to a charity and offers the option, under a separate contract, of printing leaflets. These are multiple supplies: one of standard-rated marketing advice and one of zero-rated goods. HMRC is likely to be aware of such arrangements and could challenge treatments where it considers that only one supply is being made or, perhaps, that there is value-shifting between the supplies.

HMRC has stated that where there has been a misunderstanding by a supplier about the VAT treatment of direct marketing using printed matter, it will not take any retrospective action for supplies made prior to 1 August 2015 where the supplier has zero-rated a separate single supply consisting of either addressed or unaddressed mail only.