HMRC, VAT and the DMA

Everyone knows that the rules surrounding VAT can be confusing at the very least. Sometimes they can be downright weird.

- There’s an odd VAT rule which applies to gingerbread men. No VAT is charged if the figure has two chocolate spots for its eyes, but any chocolate-based additions, such as buttons or a belt, mean VAT is payable.

- Food for wild birds is zero rated. Food for caged birds is taxed.

- Frozen foods are exempt from VAT. Unless the frozen food in question is ice-cream or yoghurt, in which case - you guessed it – you pay VAT.

- Rabbits are zero-rated, even if sold as pets. But the sales of pets are standard rated. Work that one out!

When it comes to VAT for Direct Marketing, there is a long history of mailing houses, printers, agencies and clients all working together with HMRC to ensure there are clear guidelines around when VAT should and shouldn’t be charged.

As a result of this collaboration, postage for Direct Mail campaigns has been VAT-exempt for some time (as long as it’s part of a single source solution), a situation which has been of huge benefit to the entire Direct Marketing industry, especially the large charity and financial services mailers.

So it came as a bit of a bolt from the blue when, in July this year, the HMRC sent a letter to the DMA which stated postage on Direct Mail should not be VAT zero-rated

This announcement caused both confusion and concern (to say the least!) - helped in no small part by the fact the letter itself not only contradicts the HMRC’s own guidance, but also contains several ambiguous “examples” about when postage should be zero-rated or not.

So what should you do?

In short – don’t panic.

In an attempt to gain clarity on this, the DMA have replied to the HMRC’s letter with a response pointing out their contradictions, and requesting for much more detailed clarification and guidance.

Tangible's sister company, Brightsource, experts in the field of print, production and postage, have written a much more detailed blog about the situation, and have made the following recommendation – which we fully support:

“…continue to treat postage for direct marketing mail as part of a single supply, until HMRC issues new, formal guidance in an official notice that clearly requires us to change our interpretation of the current guidance.”

It would also be a good idea to talk to your print and production provider(s) to ask them what their views on this are. Or call your local tax office and ask them for guidance. These people are best placed to give you a practical assessment based on your exact requirements.

And finally of course, contact the DMA who can update you on the latest situation.