The extent to which the zero rate of VAT applies to charity direct mailings is something of a hot topic at the moment.
Put simply, the question is this: is a charity buying ‘a composite supply of delivered goods in the form of printed matter’,or, ‘direct marketing services’?
The former is zero-rated, the latter standard rated. For most charities, who cannot reclaim the VAT they incur on these costs, this is a crucial distinction.
HMRC has identified a number of suppliers who have been applying the rules incorrectly and who have applied the zero rate of VAT to supplies which should properly have been standard rated.
HMRC have acknowledged that their previous guidance in this area has caused confusion and have therefore allowed a transitional period (until 31 July 2015) under which they will take no retrospective action where the supplier has erroneously applied the zero rate to certain supplies.
Suppliers who wish to adopt these transitional measures have until 30 November 2015 to notify HMRC.
The revised guidance setting out HMRC’s position from 1 August 2015 is set out in Revenue and Customs Brief 10/15, Notice 700/24 and Notice 701/10. Anyone making or receiving supplies affected by these rules should familiarise themselves with the new guidance and take appropriate steps to minimise risk in cases where uncertainty remains over the correct VAT treatment.