DMA calls on HMRC not to apply retrospective penalties over VAT exemptions

It’s been a couple of months since I wrote about the letter that the DMA had received from HMRC and its views on the VAT liability of 'single supplies' of advertising mail print that included the cost of postage.

After consulting with our members and other organisations, such as the Charity Tax Group and Institute of Fundraising, I wrote back to HMRC challenging some of its interpretations that appeared to be contrary to the published guidance on its website.

I also wrote to the financial secretary to the Treasury – David Gaulke MP – to gain the Government’s support that it would be grossly unfair to apply any retrospective penalties when HMRC’s guidance was confusing and we had been asking for clarification for over two years!

The DMA wants to achieve two simple objectives. The first is to ensure that no member is subject to any retrospective penalties or fines from HMRC simply as a result of “misinterpreting” (in HMRC’s view) the confusing published guidance. And the second is to get a clear and consistent agreement of the VAT liabilities when providing advertising mail print and postage so that there is a “level playing field” and all suppliers can compete on an equal footing.

I’m pleased to say that I’m increasingly confident that we’ve achieved our first objective – which is a significant result for the industry and a relief for many of our members! HMRC won’t say that it will never prosecute a company that has incorrectly applied the VAT rules but the tone of the responses I’ve received from both The Treasury and HMRC are very encouraging. I believe that it is highly unlikely that anyone will be penalised retrospectively for “misinterpreting” the HMRC guidance.

Unfortunately the second objective – clear guidance – is proving slightly more difficult to achieve. HMRC’s response does confirm that some other services can be included and says: “if the other services are artwork, design or similar leading to the supply of printed matter then HMRC would generally accept that this is a zero-rated supply of printed matter” but re-iterates its view that postage cannot be included.

I’m aware that some members strongly believe that this interpretation is incorrect and the DMA will be meeting with legal and taxation experts in the next few weeks to determine the next steps and I’ll keep you informed of progress.

You can read our correspondence with HMRC below:

Scanned Letter to HM Treasury

HMRC Letter from DMA August 2014 scanned

HM Treasury David Gauke Letter to DMA 22 Sept 2014

HMRC reply to DMA letter of 21 8 14 received 1st October 2014