Direct Mail VAT Scrutiny

Update on VAT and direct mail

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Here at Baker Goodchild, we aim to keep our clients up to date with the latest industry news and unfortunately on this occasion that means talking taxes!

Last year it was announced that charities which employ a Direct Mail Company will need to poay 20% VAT, previously this was VAT exempt. At the time of the announcement this caused uproar, especially as HMRC can request payments related to direct mail suppliers are backdated for up to four years. This could cost larger charities hundreds of thousands of pounds.

From 1st April 2015, charities will be required to pay 20% VAT on services that include the supply, printing and delivery of direct mail goods.

New developments

However there have recently been a number of fresh developments relating to this change in taxes, following intervention from the Charity Tax Group and The Direct Marketing Association. Whilst HMRC refused to accept that a zero rate should be offered, after negotiations with the DMA they have now said the following:

Where the service of the direct mail company involves only the design, print and sorting of the packs, the zero VAT rate remains available. However if the service also includes the delivery of the direct mail shots, the standard 20% VAT rate must be applied.

An exception to the new rules

There is a slight exception to this rule, as HRMC have also said that if the mailing house instead acts as an agent in arranging for a delivery company to deliver the supply on behalf of the company, the service will revert back to being zero rated.

New implementation date

In light of their discussion with the Direct Marketing Association, HRMC has agreed to postpone the start date of the new VAT treatment of direct mailing services to 1st April 2015. This action has been taken as a way of giving charities more time to make new arrangements with new and existing direct mail companies.

Until 1st April 2015, charities can continue to carry out their existing direct mail arrangements without the risk of interference from HMRC or fear of them taking retrospective action. The only time HMRC may take action is in cases of avoidance or abuse of the VAT arrangement.

If you would like further information, you can always get in touch with the team here at Baker Goodchild .

Image Credit: Howard Lake

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