The UK DMA has warned advertising mail suppliers to financial services businesses and charities that they could be sitting on a ‘VAT timebomb’ following HMRC’s two-year delay in issuing guidance on how it will impose VAT rules for the channel.
The industry has been left in the lurch since April 2012, when HMRC announced that it had stripped bulk mail of its VAT-exempt status. Since then, many advertising mail suppliers have used the practice of ‘single sourcing’ – combining postage costs with production costs – for cutting out the VAT liabilities for financial services businesses and charities, which are unable to claim back or charge VAT.
In April 2012, the DMA alerted the industry to HMRC’s change of VAT rules for bulk and issued its own guidance, which highlighted the potential dangers of single sourcing for advertising mail suppliers.
For the past two years the DMA has been calling on HMRC to issue clear guidance on whether it will exempt single-sourced advertising mail from VAT charges. The DMA is now concerned that supplier businesses that were advised to interpret the rules in this way could now be hit with large back-dated VAT bills, as well as penalties.
Mike Lordan, the UK DMA’s director of external affairs, said HMRC’s lack of communication could put many advertising mail suppliers out of business: “Thanks to HMRC taking an unacceptable length of time to respond to our request for clarification, many businesses now could 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.”
Jonathan Harman, managing director, MarketReach, added: “It is important HMRC and the wider mail industry work together to do everything possible to bolster this vital sector. Royal Mail would be concerned about any further increase in mailing costs for charities and other businesses that are unable to recover VAT. Direct contracts for postal services between charities or financial services companies and Royal Mail are unaffected – including Downstream Access contracts which continue to be exempt from VAT.”
The DMA now will lobby the Treasury and the Department for Business, Innovation and Skills to prevent HMRC from imposing backdated VAT charges and penalty fines for businesses while the industry was waiting for guidance.
The DMA is urging its members concerned about the impact of HMRC’s guidance on their advertising mail business to contact the DMA’s VAT helpdesk.
