Charity Postal Campaigns – VAT
HMRC has confirmed (or as they prefer to say, ‘clarified’) their policy regarding the VAT zero rate and mailing packs as they relate to charities and other users which cannot reclaim VAT. They have revised two of the Notices: 701/10, and 700/24. The purpose of these revisions was to make clear their policy about the extent to which a supplier can go and still preserve the zero rate for printed material. If a supplier goes too far, the supply (in HMRC’s view) becomes fully standard rated. So it is important to keep the right side of the line.
Where is the line drawn?
It is worth comparing the policy people thought applied with the policy that will apply. It was thought that a creative/print design company could both print and deliver packs and zero rate the entire supply, on the understanding that it fell into the ‘delivered goods’ category. This category allows the VAT treatment of the goods to flow through to all of the related design and delivery costs. But, last summer, HMRC said that this was not their policy. The policy now was that any actual delivery by the print company involved ‘delivery services’ and any added marketing input (such as selecting targets for a campaign) was a ‘marketing service’, and these services are standard rated. Furthermore, HMRC said that, if either of these services were included, the whole supply would then be standard rated, without a zero rated element on the printing charge.
On learning this, both the Charity Tax Group and the Direct Marketing Association flew into action, and began discussions with HMRC. The purpose of these discussions was to try to persuade HMRC they were wrong (since we did not agree with their legal analysis) and failing that, to get a practical start date for this interpretation, to try to ensure that the interpretation could be meaningfully applied by discussing where the borderline lay, and by negotiating over the circumstances in which HMRC would take retrospective action.
The latest news tells us about the first two of these. The date of full implementation of the policy will be 1 August 2015. At that point the supplier will need to ensure that they only print the packs with addresses supplied by the charity (or other client) and must not deliver except to a delivery company’s premises. The delivery has to be made by a third party who contracts with the charity. The print company can act as agent, and no more. They will often use Royal Mail’s downstream access as this is exempt from VAT.
A critical point is in interpreting what is meant by ‘addresses supplied by the charity’. It is on this, as well as a number of similar points, that the Charity Tax Group was critical to a workable outcome. In careful discussions with HMRC we were able to satisfy them that, in addition to correcting incorrect addresses prior to printing the mail pack, the requirements of mail preference suppressions, and suppressions arising from deceased and departed addressees could also be included in permissible changes to the supplied data without jettisoning the zero rate.
HMRC were willing to meet to discuss these points and listened to us carefully. They are never a push over when it comes to discussing these matters. It is their job to be challenging and to stick to their views unless a persuasive alternative is given. But they listened and took the points on board, giving us a workable outcome (within their interpretation of the law).
The issue relating to the exact scope of the retrospective concessionary treatment is another episode which should unfold over the coming days.