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HM Revenue and Customs Brief 10/15 - direct marketing services using printed matter

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Published 15 July 2015

Purpose of this brief

This brief explains HM Revenue and Customs (HMRC) approach to supplies of direct marketing that have been wrongly treated as zero-rated supplies of delivered goods.

It sets out those circumstances where we will not take action to assess for past errors (see Transitional arrangements).

It also describes the settlement terms available to businesses whose supplies do not come within the scope of the transitional arrangements (see Printed matter supplied with other services).

Who needs to read this?

Anyone who makes or receives supplies of direct marketing services using printed matter.

Action to take

To be aware of the:

  • correct VAT treatment of direct marketing services using printed matter
  • transitional arrangements where direct marketing services using printed matter were treated incorrectly for VAT
  • scope and time limit of an HMRC settlement offer for supplies that do not come within the scope of the transitional arrangements

Background

HMRC has identified that a number of suppliers of printed matter combined with other services have been treating the supply as one of zero-rated delivered goods. In HMRC’s view, these supplies should properly be characterised as a supply of standard-rated direct marketing services.

Direct marketing

Direct marketing via mail (addressed or unaddressed) or inserts in newspapers or magazines typically involves the production or acquisition of printed matter for distribution and any or all of the following services:

  • posting or arranging the posting of customer mail such as publicity, advertising material or promotional goods to many recipients, including unaddressed mail (known as door drops)
  • analysis or manipulation of data (either provided by the customer or sourced directly) for strategic or marketing reasons - for example, to target direct mail at specific groups based on geography, socio-economic factors or gender of recipients
  • purchase or rental of third party mailing lists, including for amalgamation with customer’s own lists
  • analysis of own and customer data to produce reports on campaign results and advice on strategy

Following representations we accept that, in the context of direct marketing using printed matter, there have been occasions where what is to be treated as a zero-rated supply of delivered goods or a standard-rated service has been misunderstood based on the guidance provided in the former VAT Notice 700/24 Postage and delivery charges (1 April 2003).

In light of this we have published updated guidance in VAT Notice 700/24: postage, delivery charges and direct marketing and VAT Notice 701/10: zero-rating of books and other forms of printed matter to provide greater clarity.

We have also agreed with trade representatives a transitional period, which ends on 31 July 2015, for certain cases where businesses have treated supplies of direct marketing incorrectly for VAT.

Transitional arrangements

Where there has been a misunderstanding by a supplier about the VAT treatment of direct marketing using printed matter, we will not take any retrospective action for supplies made prior to 1 August 2015 where the supplier has zero-rated a separate single supply consisting of either addressed or unaddressed mail only.

Addressed mail

The supply of printing and mailing of zero-rated marketing material to recipients based on data (such as lists of customers) provided by the customer of the print supplier.

The following services may be treated as ancillary to this supply when they are supplied by the person who has the contract to supply the completed printed matter, provided that no other services are supplied with them:

  • creative design, drafting and preparation of printed matter
  • printing of direct mail packs using pre-sorted or unsorted data provided by the printing supplier’s customer, so that the mail packs include names, addresses, postcodes and barcodes
  • printing of direct mail packs and correction of data supplied by the printing supplier’s customer - data correction includes only:
    • amendment in accordance with Royal Mail address format guidance
    • amendment to comply with the requirements of the Mail Preference Service
    • removal of ‘gone-aways’ and the deceased

Unaddressed mail (door drops)

The transitional arrangements will only apply to door drops where it can be demonstrated that the supplier’s service consisted only of the printing and delivery of zero-rated printed matter and the customer has instructed the supplier as to the timing and location of the deliveries.

Where a third party provides marketing services and the supply of these services is to the customer, the transitional arrangements apply, provided the other criteria above are met.

Where a third party provides marketing services and the supply is to the business which is providing printing and delivery of the material, the printing/delivery business will then be supplying those marketing services to the customer and the transitional arrangements will not apply.

If a business zero-rated supplies of door drops made prior to 1 August 2015 which fall within the scope of the transitional arrangements, it does not have to account for VAT on them. The business should retain any contracts/agreements, invoices or other contemporaneous evidence which demonstrate that the supply comprises printed matter and distribution services only. This evidence is required to demonstrate that the business has not:

  • provided the door drops as part of a supply of direct marketing services
  • been invoiced for services such as strategic, planning or other supplies (including determining the timing and location of deliveries) made to the customer by any third party unless they were treated as disbursements
  • artificially split these supplies from other supplies it may have made to its customer

Addressed and unaddressed mail

The transitional arrangements do not apply in cases where the arrangements are seen to be abusive or artificial. This includes forestalling, where a prepayment is made or an invoice issued after 9 June 2015 for deliveries to take place after 31 July 2015.

These transitional arrangements only apply to businesses which had misunderstood the guidance in the former VAT Notice 700/24 Postage and delivery charges (1 April 2003).

Businesses which had understood the guidance cannot seek to apply these transitional arrangements and HMRC will not repay VAT claimed in any Error Correction Notifications (ECN) which seek to claim the benefit of these arrangements.

If you wish to adopt the transitional arrangements

Suppliers must notify their intention to adopt the transitional arrangements to HMRC by 30 November 2015 by email to john.hegarty@hmrc.gsi.gov.uk or by post for the attention of:

John Hegarty
Local Compliance
HM Revenue and Customs
S0717
Newcastle
NE98 1ZZ

The sender must be an ‘authorised person’ of the business. The email must acknowledge acceptance of the terms of the transitional arrangements as follows - ‘(Insert sender organisation and VAT registration number) intends to adopt the transitional arrangements set out in Revenue and Customs Brief 10 (2015) from the Commissioners of HMRC dated 15 July 2015.’.

Failure to notify an intention to adopt the transitional arrangements by 30 November 2015 will mean that a business will no longer be entitled to take advantage of them.

Printed matter supplied with other services

Where a supplier has made supplies of direct marketing services prior to 1 August 2015 that are not within the scope of the transitional arrangements they may settle their outstanding VAT liabilities on the following terms.

For the purpose of the Settlement the supply of marketing services may be treated as multiple supplies of goods and services using the following analysis.

Zero-rating can be applied to the ‘printed matter element’ of the supply and any of the ancillary services described in paragraph 3.1 of VAT Notice 700/24: postage, delivery charges and direct marketing.

VAT at the standard rate must be accounted for on any other services supplied with the printed matter, including but not limited to:

  • marketing
  • promotional
  • strategic
  • planning
  • response handling
  • distribution
  • media insert
  • purchase of third party mailing lists
  • data targeting analysis
  • data cleansing
  • other services not ancillary to the supply of printed matter

Where postal services were obtained from Royal Mail these will be taxed if they were subject to VAT when purchased by the supplier. They can be treated as a disbursement for the purposes of the Settlement if they were purchased as an exempt supply from the Royal Mail.

Where suppliers have charged a single price or where the supply includes the cost of in-house services (such as strategic, planning, management, response handling or similar) which comprise standard-rated services, then staff and other in-house costs must be directly attributed to the relevant supply of standard-rated services or the supply of printed matter wherever possible.

Where staff and other in-house costs are used for both standard and zero-rated supplies, then the value attributable to the zero-rated element must be apportioned between standard-rated and zero-rated supplies on a fair and reasonable basis (Section 31 VAT Notice 700: the VAT guide provides further information on how this may be done).

Suppliers who believe they have accounted for VAT correctly or have a clear ruling from HMRC which meets the tests for legitimate expectation do not have to accept the terms of the Settlement. HMRC may investigate these cases and matters will be dealt with in the normal way.

If you wish to settle

Suppliers must notify their acceptance to HMRC by 30 November 2015 by email to john.hegarty@hmrc.gsi.gov.uk or by post for the attention of:

John Hegarty
Local Compliance
HM Revenue and Customs
S0717
Newcastle
NE98 1ZZ

The sender must be an ‘authorised person’ of the business. The email must acknowledge acceptance of the Settlement of the offer as follows - ‘(Insert sender organisation and VAT registration number) agrees to the terms and conditions of the Settlement as set out in Revenue and Customs Brief 10 (2015) from the Commissioners of HMRC dated 15 July 2015.’.

Failure to accept the Settlement by 30 November 2015 will mean that a business will no longer be entitled to take advantage of the Settlement terms.

Where a supplier has notified acceptance, the Settlement is conditional on them submitting an ECN with a schedule on a VAT Return period basis for accounting periods from 1 August 2011 up to 31 July 2015. This must include the total of the disputed supplies, the value of the zero-rated supplies, the nature of the standard-rated supplies (data, insertion services, strategic, etc) and the relevant VAT due. Where a business which wishes to accept the Settlement is already being audited by HMRC, the terms of the Settlement will be reflected in any necessary changes to protective assessments already issued.

The information must either be emailed or posted to John Hegarty as above to reach him no later than 31 December 2015.

Interest

Adjustments will be subject to interest charges pursuant to s74 of the VAT Act 1994.

Penalties

Each case will be judged on its own merits.

Avoidance/abuse

Any attempt to exploit this Settlement in a manner which in HMRC’s view amounts to tax avoidance or abuse will render the Settlement null and void.


About the Author

© Crown Copyright 2015.

A licence is needed to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs.



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Article Published/Sorted/Amended on Scopulus 2015-07-27 13:41:18 in Tax Articles

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