DMA Warning On Ad-Mail ‘VAT Timebomb’

A recent article released by the DMA has stated that Direct Mail suppliers to charities and financial services businesses could face crippling backdated VAT bills. It has been revealed that many printers could be sitting on a “VAT Timebomb”.

The warning follows HMRC’s decision in April 2012 to strip bulk mail of its VAT-exempt status, which led many suppliers to charities and financial services businesses that are unable to claim back or charge VAT to use “single sourcing” as a means of cutting out the VAT liability.

This practice combines postage costs & production costs, meaning that the whole lot could be zero-rated; this was viewed by many in the industry as being within the guidelines announced by HMRC in April 2012, although the DMA advised members at the time to seek professional advice and ideally written confirmation from HMRC.

The DMA also pressed HMRC to issue clear guidance on whether single-sourced advertising mail would be exempt from VAT charges. It is only now that after 18 months of chasing, HMRC replied saying it intends to issue new guidance on the matter.

A spokesman for the DMA said: “They have made it very clear that what an awful lot of people have been doing in single-sourcing would, in their view, change the nature of what is being supplied from zero-rated goods, to a fully VAT-able supply of a service”.

“This means that where the industry has taken one view, HMRC has taken the opposite and could potentially issue backdated VAT bills and penalties to companies that have not complied with their interpretation of the published guidelines.”

With HMRC’s new guidance likely to be published in the near future, the DMA is lobbying the Treasury and BIS to prevent HMRC from issuing retrospective charges and penalties to businesses for the period from April 2012 while the industry was awaiting clearer guidance.

DMA director of external affairs Mike Lordan said: “Thanks to HMRC taking an unacceptable length of time to respond to our request for clarification, many businesses could now be sitting on a huge VAT Timebomb.

“While we’ve advised businesses to take a cautious approach, the ambiguity surrounding the rules means that many businesses have interpreted the rules differently. Until now, HMRC has not issued guidance to the contrary. HMRC created this vacuum so it would be extremely unfair for them now to penalise companies.”

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