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Can VAT be avoided on Direct Mail
Submitted by linpride on 8 November, 2007 - 17:22.
I work with a local charity and wonder whether the following could lead to situation where VAT could be avoided on postage (and indeed other VATable costs).
assume i am writing an appeal letter, this will be zero-vated.
however using one of the downstream access mail providers would mean that the VAT has to be charged on the postage element.
Could the printing and mailing company not charge a very high price for the appeal letter (which will unoficially incorporate the cost of the postage), and then provide the postage Free of Charge to the charity.
The printer would claim back the VAT on the printing and postage, but would be able to invoice the charity the entire amount at zero vat
Just a thought and would welcome some informed feedback
thanks
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RE: Can VAT be avoided on Direct Mail
The information you need is contained within "Notice 701/58 (section 3.4 - 3.5)" - google "Notice 701/58 should bring it up for you.
The zero rating relief only applies to printed matter, nothing else. The provision of the mailing is a seperate service and will be standard-rated.
The mailing company cannot artificially seperate out the supplies it makes (firstly because the 'package test' only relates to what is in the actual package/envelope) and secondly, because the physical act of distribution is a seperate provision as customers could choose not to have both services.
HMRC will view any such print & mail contract as a mixed supply of printed materials and seeing an invoice to the charity for no postage on a delivery contract will ring alarm bells and the mailing firm will receive a VAT liability - so I'll doubt very much any reputable printer/mailer would agree to these terms as they'd be exposing themselves to a VAT liability and they would have to justify to HMRC why they have chosen to make two seperate supplies a single one and any tribunal would look to see which of the two supplies was the more dominant/substantial - and I'd suspect they say postage and so would fail any composite/single supply test as well.
One way around it is to get the printing done externally and do the mailing aspect yourself in-house and buying stamps from Royal Mail which will exempt from VAT and therefore technically cheaper. (so zero rated printing and exempt postage) - but guess depends upon the size of your campaign.