18 August 2014 
Amanda Darley, Head of Operations and Engagement
The Charities Tax Group (‘CTG’) has alerted charities to the fact that HMRC has been in correspondence with the Direct Marketing Association (DMA) resulting in a letter stating that a single contract for the production and postage/delivery of printed materials should be treated as standard rated for VAT, whereas many of these contracts had previously been treated as zero rated.
Many charities pay a single supplier to provide production and postage/delivery of printed materials. Many suppliers have not charged VAT on these contracts previously (a single composite supply), which were considered to be zero rated because they were considered to primarily involve the supply of printed materials, with postage an “ancillary” cost. Such arrangements increased following the introduction of VAT at the standard rate on most bulk mailing services from April 2012, with charities seeking to retain the zero rating by bundling together printing and postage costs.
The DMA has received a letter from HMRC saying that the whole contract – both production/materials and postage – will be standard rated, which would raise the cost of mailings by 20%, with a potential cost of millions of pounds for the charity sector.
However, despite this letter from an HMRC Policy Advisor to the DMA, there has been no formal announcement by HMRC of any change in policy, and no apparent consultation with affected parties. HMRC’s public notice on postage states that VAT is not charged separately for delivery where delivery is part of the contract for the goods. The DMA is advising its members to stop treating contracts for production and postage/delivery of marketing materials as zero rated as soon as possible, but it’s not yet clear whether HMRC has actually changed its policy in this area.
CTG will be contacting HMRC officials to request clarification of the position and to publish the legal advice they have received. CTG is requesting feedback on the likely financial impact of the loss of the ability to zero rate these arrangements. Therefore, if you think this could affect your institution, please contact Amanda to let her know the likely financial impact of any zero rated single supplies of production and postage/delivery of printed materials becoming standard rated. CTG has also arranged a meeting with staff at the DMA this week to discuss next steps and a proposed response to HMRC.
