Whilst the industry is in the process of aligning itself with HMRC’s published policy in Revenue & Customs Brief 10 2015, (note today’s deadline!), there is another bump in the road.
HMRC updated VAT Notice 700/24: postage, delivery charges and direct marketing in June 2015 to address concerns that suppliers were misinterpreting the guidance in the previous version, such that certain supplies were being incorrectly zero rated. It is unfortunate that the updated version has introduced its own (in our opinion) glaring error.
The Notice contains some potentially misleading wording. It is the third paragraph in section 3.3. The third paragraph is an example and reads as follows:
‘An example of a single supply occurs where a supplier prints leaflets for a charity and, as part of the contract, amends the charity’s customer data so that address and postcode details are correct. This is a single supply of zero-rated goods.’
The item of printed matter used in this example is a leaflet. In the example the supplier also requires customer data in order to print the leaflet. The usual reason for providing customer data to the printer is so that the item of printed matter may be addressed. It can then be posted to the selected recipient. To develop the above example, there will be problem if the customer data is used to address the leaflets. This is because leaflets which carry a name and address cannot be zero rated.
HMRC’s example above states there is a ‘single supply of zero rated goods’ when a supplier prints a leaflet using customer data. Our concern is that many suppliers may misinterpret this as authority to supply and zero rate leaflets which carry a name and/or address.
Any supplier who incorrectly zero rates a supply of personalised leaflets might feel aggrieved to be on the end of a subsequent bill for undercharged VAT but unfortunately the system is weighted in HMRC’s favour. To quote from their own guidance manuals – ‘Every case of misleading advice that results in actual or potential incorrect declarations of tax must be considered on its own merits…’. and ‘The starting point for all cases is that HMRC is not bound by any advice it gives which is incorrect in law’.
We expressed our concerns about the misleading information in Notice 700/24 and HMRC have confirmed that personalised leaflets do not qualify or zero rating. Also and due to us bringing this matter to their attention they are considering changing section 3.3 when the Notice is next reviewed, but it is unlikely that this will be any time soon!