In 2014 HMRC ‘clarified’ its policy on the treatment of printing companies supplying and delivering mailings, to confirm that they regarded the entire service as a direct mailing/marketing service which would be subject to 20% VAT, rather than wholly or partly zero rated (as the supply of most printed matter products is not subject to VAT).
Despite an initially robust approach to charities and printing companies by HMRC, it was eventually accepted that the position was not clear given the wording in the guidance and an amnesty was introduced for a limited period.
Going forward, the clarification meant that organisations such as charities and financial institutions that cannot recover their VAT would bear additional costs from advertising and mailing campaigns in the future.
Without any legal test case the printing industry and its customers had to accept HMRC’s position and live with the additional VAT costs.
Paragon Customer Communications Limited, an insurance company, took HMRC to a VAT Tribunal to examine this point. In the case, HMRC tried to argue that there was a supply of services that went beyond the provision of zero rated goods, as they have done in their guidance. HMRC did not accept that the essence of the supply was the goods that were delivered and considered it a ‘service’. The supply in question involved printing and delivering mailing packs, similar to fundraising packs for charities.
HMRC lost the case and the tribunal held that the supply was one of zero rated printed goods.
As this is a first tier Tribunal decision HMRC will argue that it was decided on specific facts and cannot be relied upon by other taxpayers, however this aside, HMRC’s guidance and previously held position may be wrong in law.
It would be extremely helpful to everyone if HMRC appeals as a decision in the Upper Tribunal will carry more weight and would clarify the position for everyone. Printing companies and charities should therefore be aware of this as it will have important consequences to margins and VAT savings if the taxpayer wins again.
If you have a query about VAT, please contact Iain Masterton at firstname.lastname@example.org today.