HMRC has updated its guidance on direct mail to provide more clarity and to offer more protection to charities that may have faced a retrospective tax bill.
Last year HMRC clarified its position on direct mail, to say that charities which had contracts including printing, production and delivery - known as 'single sourcing' contacts - had to pay 20 per cent VAT.
Charities had previously believed these contracts were zero-rated for VAT.
In its updated guidance, released yesterday, HMRC has agreed to clarify transitional arrangements for charities which previously believed they did not have to pay VAT, and are now changing their direct mail contracts as a result.
The new guidance allows more charitable activities connected to direct mail to continue to be zero-rated, including door drops where it can be demonstrated that the supplier’s service consisted only of printing and delivery of zero-rated matter, and the customer has instructed the supplier as to the timing and location of the deliveries.
The guidance also sets out circumstances where HMRC will not take action on past errors, confirming that the transitional period during which HMRC will not charge 20 per cent VAT on direct mail will end on 31 July 2015.
It also clarifies that a requirement of the transitional arrangements are that the supplier notifies HMRC that they intend to apply the arrangement by 30 November 2015.
CTG comments
John Hemming (pictured), chair of the Charity Tax Group, said: “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.”
Hemming said that the publication of the brief and the recent revisions of the guidance signalled the end of a long period of negotiations with officials.
He added that CTG is “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”.
CTG has produced a standard letter for charities to use to ensure print companies are aware of HMRC’s transitional arrangements and the time limit for claiming their retrospective concessions, to ensure that charities can protect their positions.
HMRC changed its position on VAT and direct mail, meaning many contracts which charities believed were zero-rated for VAT purposes are actually standard-rated. This means that up to £400m of charity direct mail could face additional VAT charges of 20 per cent.
The update follows an issue that arose in July 2014, after a letter was sent from HMRC to the Direct Marketing Association which outlined how direct mail should be treated for VAT purposes.
A series of letters were sent by HMRC to the Direct Mail Association and the Charity Tax Group where it was confirmed that they would be treated as a supply of standard-rated direct marketing services, and it sought to implement the new arrangements by 1 October 2014.
Charities and direct mailing companies had sought clarification on the past and future VAT treatment of their direct mail arrangements and this led to representatives from CTG and the DMA meeting HMRC officials on a number of occasions over the past few months.
This led to an extension of the transitional period to 1 April 2015, and now, in this latest update, to 31 July 2015.
CTG said it was able 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) as ancillary to the zero-rated supply of printed goods”.
