So we now have what we’ve all been waiting for. The definitive guide to VAT on direct mail. Or have we…
HMRC’s most recent correspondence (Open PDF) is a useful statement of policy, extracted after over two years of pressing from independent tax professionals like us and trade bodies such as the DMA and CTG.
But predictably it doesn’t (and was never likely to) answer all the questions. It confirms a number of things that we already knew, hints at some other things, and completely omits to mention certain other things!
Whilst there are still negotiations with HMRC about some of these matters, we shouldn’t expect too much more information. What is good about HMRC’s letter is that they have have taken on board the feedback about many of our industry’s concerns.
One of the widely talked about factors is the issue of retrospective action for incorrectly applied VAT. HMRC have confirmed in their letter that they do not intend to take action in cases where suppliers got it wrong prior to 1st April 2015. However, this is not a free for all and there is an important caveat that this will not apply if the “treatment is seen as abusive or the arrangements are artificial”. In their guidance manuals HMRC define artificial as:
‘Whether a situation is artificial is the primary thought to keep in mind when making a decision. There is no single definition of what HMRC considers to be artificial as this conclusion will always depend on the circumstances of each transaction, but in general terms we judge an arrangement to be artificial if the contractual arrangements are inconsistent with the economic reality of the transactions. This is also considered in the test for abuse where the essential aim of the arrangement is to obtain a tax advantage contrary to the purpose of the legislation.’
HMRC admit that some of their published guidance led to misunderstandings. They intend to publish updates as soon as possible.
Very importantly they appear to have stepped back from their aggressive stance that the moment you combine certain services with printed matter, it becomes a single standard rated supply.
There is also information in the letter about what services may be singled sourced with printed matter. Here again there has been some success. HMRC now accept that certain services necessary to produce a mail pack ready to be put into the postal system should be regarded as part of the production of the pack. In affect, that these services may be single sourced with the print and subject to VAT accordingly.
So, whilst the letter from HMRC is a useful step in the right direction it is not the “Definitive Guide to VAT on Direct Mail”, which is lucky for taxation professionals like us who get paid to deal with the tricky stuff!
As ever with these matters, if you are in any doubt you should seek professional advice.