New VAT treatment for direct mail print and distribution to begin in new tax year, following DMA deal with HRMC
Companies using ‘single sourcing’ for mitigating VAT liabilities on direct mail print and distribution will not be subject to retrospective fines, after a deal made by the DMA and Charity Tax Group with the HRMC.
Single sourcing is a content management method which allows the same source content to be used across different forms of media and more than one time.
Many began using the practice after mail services became liable for VAT in April 2012, but in August the DMA warned the industry that it could be sitting on a ‘VAT time bomb’ when HMRC announced that many suppliers were incorrectly applying the guidance it had issued.
The DMA had lobbied 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 has awaited guidance.
Now, the new HMRC guidance, set to be introduced on 1 April 2015, will see those who did use single sourcing cleared of retrospective fines, as well as clearing up ambiguities surrounding the legitimacy of using single sourcing, and giving businesses time to apply necessary changes to existing contracts.
Mike Lordan, the DMA’s director of external affairs, who led the discussions, welcomed HMRC’s agreement: “Many businesses and charities can now breathe a sigh of relief that they won’t be facing any retrospective penalties - which could have run into the hundreds of millions of pounds - as a result of a genuine misunderstanding. We now also have the unambiguous guidance that we have been seeking that will allow all suppliers to compete on a level playing field.
“We’re pleased that HMRC has given the industry a realistic timescale to work to. It gives the sector breathing space to prepare for the changes without compromising their businesses.”
If an agreement had not been made, retrospective penalties could have totalled hundreds of millions of pounds.