VAT changes on direct marketing services

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HMRC has recently announced changes to the VAT liability of certain direct marketing services using printed matter, such as addressed mail or unaddressed mail (door drops). The changes are set out in Revenue & Customs Brief 10 (2015) and in amendments to VAT Notices 700/24 and 701/10. The changes are effective from the 1 August 2015.

In a number of cases zero-rating will no longer be available and the services will attract VAT at 20%.

HMRC has also announced that where suppliers have genuinely misunderstood the VAT rules as were previously set out in VAT Notice 700/24 that they will not seek to take retrospective action. However, in order to benefit from this concession suppliers must notify HMRC that they agree to the terms of the transitional arrangements by the 30 November 2015.

The Revenue & Customs Brief also sets out the steps that should be followed by any business who wishes to settle a retrospective liability . It also outlines situations where they consider that steps to avoid having to account for VAT on certain supplies will be viewed as abusive or artificial- ie where prepayments are made by customers to suppliers for supplies that will be subject to VAT as from the 1 August 2015.

The change is likely to mean that fundraising costs for charities in particular are likely to increase as they will be unable to recover the VAT charged.

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