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A recent case at the VAT Tribunal; Paragon Customer Communications (Paragon) may have reopened the debate about the VAT liability of Direct Mail Packs.
In 2014/15, HMRC decided that the treatment of the production and delivery of Direct Mail Packs was effectively a standard rated supply of marketing services rather than a supply of delivered (zero rated) goods. This technical issues are complex suffice to say that the outcome in the change in policy and the additional VAT has resulted in a significant increase in the costs for charities using these services to get their fundraising message across.
The Paragon case involves booklets collated from multiple sheets of information produced for an insurance company (which like many charities was unable to recover VAT on its costs) which were delivered to policyholders. Whilst there were differences in the arrangements in comparison to those for the typical charity direct mailing, the challenge by HMRC was essentially on the same basis in that HMRC argued that there was a single supply of services liable to VAT (i.e. collating the information, stapling them together etc.) rather than a supply of delivered (zero rated) booklets.
As a First Tier Tribunal decision, this does not set a precedent but it will be interesting to see if HMRC appeal. Watch this space if you are now incurring VAT on Direct Mail Packs as this case could be good news.
Contact Ellen Main-Jeffrey, Head of VAT Services 01926 451000 if you would like to discuss this case or indeed any VAT matter.