VAT on adverting mail â HMRC gives final confirmation

HMRC has confirmed that it won’t apply retrospective penalties to businesses using ‘single sourcing’ to mitigate VAT liability for producing and sending advertising mail, and has given them until 1 April to update their processes.

Businesses that were using so called ‘single sourcing’ to mitigate their VAT liability for producing and sending advertising mail had been facing the prospect of potentially ruinous retrospective penalties, after HMRC confirmed the practice was not allowed.

In December, I posted a blog on the agreement that we believed we had reached with HMRC about how to apply VAT when providing postage with zero-rated print. I’m pleased to say that this is my last blog on this subject because we have received confirmation in writing from HMRC on all of the points on which we sought clarification.

In its letter, HMRC has agreed that its guidance on Postage and Delivery Charges 700/24 is open to misinterpretation and it does not intend to take any retrospective action against companies that have “misunderstood” the guidance. To allow the industry time to put in place any alternative arrangements this policy will extend to 1 April 2015.

HMRC has also confirmed that data processing that is necessary to meet the mail operator’s specifications – such as address cleansing and enhancement - can be included as part of a zero-rated supply of print. HMRC has also promised to publish revised guidance on the VAT treatment of postage and delivery charges to cover the points in their letter imminently.

Read HMRC’s letter here

This is a great result for the industry - the latest letter from HMRC is very different from their original position back in August 2014. We have not only removed any threat of retrospective penalties, but have also ensured that the industry still has a way to mitigate VAT on postage through agency agreements and disbursements in a way that is accepted by HMRC.

I’d like to thank those DMA members who provided documents and correspondence that really helped us in these negotiations with HMRC.

If you need any further information please contact the DMA VAT helpline.