The Charity Tax Group (CTG) has announced that, following discussions between itself, the Direct Marketing Association (DMA) and HMRC, a ‘broad agreement has now been reached’ on the past and future VAT treatment of direct mail services involving the preparation, printing and strategic distributi
The Charity Tax Group (CTG) has announced that, following discussions between itself, the Direct Marketing Association (DMA) and HMRC, a ‘broad agreement has now been reached’ on the past and future VAT treatment of direct mail services involving the preparation, printing and strategic distribution of mail-packs on behalf of charities and other bodies. The news comes after ‘considerable concern and confusion about the correct VAT treatment of direct mail services and the possible adverse impact on charities’ fundraising’ after HMRC officials initially said they believed printing and distribution of mail-packs should be treated for VAT purposes as a supply of standard-rated direct marketing services and sought to implement the new arrangements by 1 October 2014, even though some charities had received HMRC agreement to the contrary.
HMRC has now agreed to postpone the start date to 1 April 2015. Until then, charities are able to continue using existing arrangements without HMRC taking retrospective action, except where HMRC considers these arrangements to constitute avoidance or abuse, when the whole should then be standard-rated as marketing services.
CTG chairman John Hemming said: ‘This is excellent news because it gives time for charities to put in place revised arrangements meeting the deadline of 1 April 2015 while minimising additional VAT costs. Ten of our members had calculated that their retrospective liability could have been as high as £6m – the impact for the whole sector would have been tens of millions.’ He added that the CTG ‘will seek further clarity where there remains some middle ground disagreement’ as to whether the mere addition of delivery of the printed mail packs to recipients the charity has identified is sufficient to create a standard-rated marketing service by the printer.
Some disagreements remain, however. Graham Elliott, VAT consultant at Withers, commented: ‘The revised April 2015 implementation date of the new policy is a welcome development following HMRC’s earlier insistence on it applying from October 2014. However, I do not agree with its view that the inclusion of delivery of the goods changes the nature of the supply to that of a marketing service, and believe that HMRC is probably wrong in law on this point. Nor do I believe that this has always been its policy, as large numbers of rulings issued by HMRC officers until very recently testify.
‘It appears to me that HMRC did not follow the appropriate procedure, as they did not consult the industry, or look carefully enough into their own previous pronouncements, before publishing statements from which they appear to have found it too difficult to retreat. Any “abuse” of the rules could have been dealt with on a targeted basis, which this certainly is not. Whilst there are ways of achieving a similar result to the “delivered goods” approach, which many charities and their suppliers will adopt in time for April 2015, HMRC may yet find themselves having to defend their new policy in court, at the cost of public money, which could have been avoided had they approached the issue via a more considered and robust process.’
HMRC is expected to issue detailed guidance in the new year.
The Charity Tax Group (CTG) has announced that, following discussions between itself, the Direct Marketing Association (DMA) and HMRC, a ‘broad agreement has now been reached’ on the past and future VAT treatment of direct mail services involving the preparation, printing and strategic distributi
The Charity Tax Group (CTG) has announced that, following discussions between itself, the Direct Marketing Association (DMA) and HMRC, a ‘broad agreement has now been reached’ on the past and future VAT treatment of direct mail services involving the preparation, printing and strategic distribution of mail-packs on behalf of charities and other bodies. The news comes after ‘considerable concern and confusion about the correct VAT treatment of direct mail services and the possible adverse impact on charities’ fundraising’ after HMRC officials initially said they believed printing and distribution of mail-packs should be treated for VAT purposes as a supply of standard-rated direct marketing services and sought to implement the new arrangements by 1 October 2014, even though some charities had received HMRC agreement to the contrary.
HMRC has now agreed to postpone the start date to 1 April 2015. Until then, charities are able to continue using existing arrangements without HMRC taking retrospective action, except where HMRC considers these arrangements to constitute avoidance or abuse, when the whole should then be standard-rated as marketing services.
CTG chairman John Hemming said: ‘This is excellent news because it gives time for charities to put in place revised arrangements meeting the deadline of 1 April 2015 while minimising additional VAT costs. Ten of our members had calculated that their retrospective liability could have been as high as £6m – the impact for the whole sector would have been tens of millions.’ He added that the CTG ‘will seek further clarity where there remains some middle ground disagreement’ as to whether the mere addition of delivery of the printed mail packs to recipients the charity has identified is sufficient to create a standard-rated marketing service by the printer.
Some disagreements remain, however. Graham Elliott, VAT consultant at Withers, commented: ‘The revised April 2015 implementation date of the new policy is a welcome development following HMRC’s earlier insistence on it applying from October 2014. However, I do not agree with its view that the inclusion of delivery of the goods changes the nature of the supply to that of a marketing service, and believe that HMRC is probably wrong in law on this point. Nor do I believe that this has always been its policy, as large numbers of rulings issued by HMRC officers until very recently testify.
‘It appears to me that HMRC did not follow the appropriate procedure, as they did not consult the industry, or look carefully enough into their own previous pronouncements, before publishing statements from which they appear to have found it too difficult to retreat. Any “abuse” of the rules could have been dealt with on a targeted basis, which this certainly is not. Whilst there are ways of achieving a similar result to the “delivered goods” approach, which many charities and their suppliers will adopt in time for April 2015, HMRC may yet find themselves having to defend their new policy in court, at the cost of public money, which could have been avoided had they approached the issue via a more considered and robust process.’
HMRC is expected to issue detailed guidance in the new year.
