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HMRC delays changes to VAT treatment of direct marketing services

19 December 2014


HMRC delays changes to VAT treatment of direct marketing services

HMRC had previously announced that from 1 October 2014 zero-rating would only apply to the production of direct marketing material, rather than the entire package. This policy change has now been deferred until 1 April 2015 while discussions with the Direct Marketing Association and Charity Tax Group continue.


Although this delay is welcome, it does not leave charities with a lot of time to prepare if HMRC maintains its current position. We recommend you review your existing arrangements now so you can plan to minimise the VAT cost going forward.  

The Charity Tax Group’s announcement of this change is set out below. 


Charity Tax Group Update: 11 December 2014


There has been considerable concern and confusion about the correct VAT treatment of direct mail services and the possible adverse impact on charities’ fundraising after HMRC officials confirmed that they believed printing and distribution of mail-packs should be treated for VAT purposes as a supply of standard rated direct marketing services and sought to implement the new arrangements by 1 October 2014. This is despite the fact that some charities had received HMRC agreement to the contrary.


Following constructive discussions between HMRC and the Charity Tax Group (CTG) and the Direct Marketing Association (DMA), a broad agreement has now been reached on the past and future VAT treatment of direct mail services involving the preparation, printing and strategic distribution of mail-packs on behalf of charities and other bodies.


HMRC has agreed to postpone the start date from 1 October 2014 to 1 April 2015. Until then charities are able to continue using existing arrangements without HMRC taking retrospective action except where HMRC consider these arrangements constitute avoidance or abuse, whereby the whole should then be standard rated as marketing services.


Arrangements from 1 April 2015

Detailed guidance will be issued by HMRC in the New Year confirming HMRC’s policy and will be enforced from 1 April 2015.


CTG's understanding of the present position


A) The printing and distribution of fundraising mail packs when provided together as a composite supply may continue to be zero rated until 31 March 2015.


B) The printing of direct mail packs (but not distribution) will continue to enjoy zero-rating beyond 31 March 2015. The following will be regarded as part of a composite zero-rated supply


I. The services necessary and essential for the preparation of the mail packs for mailing by a carrier (including addressing and sorting as required by the carrier)

II. All design and creative services prior to design and printing of a mail-pack.


C) The supply of all services that are advisory, planning and strategic are always standard-rated, and cannot be included as part of a zero rated supply.


D) The supply of distribution services are (and will be) standard-rated if provided as a separate supply, and exempt if provided by Royal Mail as an agency disbursement for the charity under downstream access arrangements. CTG does not agree with this technical interpretation in relation to the VAT treatment of the delivery element but recognises that this is currently HMRC's position.



HMRC has agreed retrospective action will not be taken except in cases where the composite zero-rated supply has been in HMRC’s view structured to include strategic, planning and advisory services (which should then be standard rated). In general they will not take retrospective action or raise past assessments because of genuine misunderstanding of the position by the industry sector and charities may therefore continue to use existing arrangements until 1 April 2015.



Direct mail arrangements involve the printing and distribution of mail-packs by specialist companies on behalf of charities (mainly for the purposes of fundraising) and other organisations. The issue arose in July 2014, following a letter from HMRC to the DMA (following discussions since 2012) outlining how single source arrangements for the print and distribution of such mail packs should be treated for VAT purposes – was it a single composite supply of zero rated delivered goods (as widely believed in the industry sector and confirmed in numerous rulings from HMRC officers); or a supply of standard rated direct marketing services. In a series of letters to the DMA and CTG, HMRC officials confirmed that they believed it was the latter and sought to implement the new arrangements by 1 October 2014. Charities and direct mailing companies sought clarification on the past and future VAT treatment of their direct mail arrangements and this led to representatives from CTG and the DMA meeting HMRC officials on 12 November 2014 and 1 December 2014 to review the arrangements outlined in this update.

For further information please contact Robert Warne or your usual contact at Crowe Clark Whitehill.

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