HMRC says it has identified that a number of suppliers of printed matter combined with other services have been treating the supply as a single composite supply of zero-rated delivered goods, whereas HMRC says these supplies should properly be characterised as a supply of standard-rated direct marketing services.

In its latest policy paper, HMRC acknowledges there has been some confusion over this issue in the past, stating: ‘Following representations we accept that, in the context of direct marketing using printed matter, there have been occasions where what is to be treated as a zero-rated supply of delivered goods or a standard-rated service has been misunderstood based on the guidance provided in the former VAT Notice 700/24 Postage and delivery charges (1 April 2003).’

HMRC confirms that it has agreed a transitional period, which ends on 31 July 2015, for charities and suppliers who have been treating supplies of direct marketing incorrectly for VAT.

The policy states: ‘Where there has been a misunderstanding by a supplier about the VAT treatment of direct marketing using printed matter, we 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.’

The scope of the transitional period arrangements has been widened to include unaddressed mail, or ‘door drops’ in circumstances where the supplier is solely responsible for printing and delivering material and the charity then provides instructions on the timing and location of deliveries.

HMRC says the transitional arrangements do not apply in cases where the arrangements are seen to be abusive or artificial. This includes forestalling, where a prepayment is made or an invoice issued after 9 June 2015 for deliveries to take place after 31 July 2015.

Suppliers who want to adopt the transitional arrangements must notify HMRC by 30 November 2015.

This is also the deadline for suppliers who made supplies of direct marketing services prior to 1 August 2015 that are not within the scope of the transitional arrangements and who now want to settle outstanding VAT liabilities. HMRC’s policy paper sets out its agreed settlement terms, including how staff and in-house costs are to be attributed in contracts combining standard and zero-rated supplies.

John Hemming, chairman of the Charity Tax Group (CTG), welcomed the guidance  which he said ‘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 signal 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,’ Hemming said. 

HMRC’s briefing, VAT - direct marketing services using printed matter, is here

Updated guidance in VAT Notice 700/24: postages, delivery charges and direct marketing here

VAT Notice 701/10: zero-rating of books and other forms of printed matter is here

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