VAT & Direct Marketing Costs – Why Charities need to act now

With the holiday season upon us it’s all too easy to miss out on the “minutiae” of VAT management I appreciate, so here’s a quick postcard to highlight an issue which could come back to haunt a charity if not addressed.

HMRC have issued a new policy paper to outline the VAT treatment of Direct Marketing Services using printed matter which is a long way of saying “mailshots”.

The problem springs from the fact that whilst the production of printed matter is a supply of goods which can benefit from the zero rate of VAT on the supply of a charity leaflet or newsletter, HMRC clearly see the services of sending that mailshot out as a service subject to the standard 20% VAT charge. The issue is that often all of these activities are bundled together and some suppliers had treated the whole supply to the charity as being zero rated whereas HMRC believe it should have been standard rated in total.

This difference of opinion has been a cause for great concern in the Third Sector as the exposure to charities ran into the millions.

What has been accepted now is that such a single supply of direct marketing services do, and should always, attract a 20% VAT charge but HMRC will not undertake any retrospective assessments for VAT undercharged by marketing suppliers as long as they specifically write to HMRC to make a disclosure about these supplies.

In what is termed as “transitional arrangements” HMRC will not take retrospective action for incorrectly zero rated supplies made in the period up to 1 August 2015 as long as the supplier notifies them by post or email by 30 November 2015.

It would be important for any charity that has received zero rated supplies of direct marketing services involving printed matter from suppliers in the period up to 31 July 2015 to ensure that the supplier has taken advantage of this transitional arrangement so as to mitigate the risk of later receiving an invoice from them for the VAT missed off past supplies.