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VAT treatment of mail packs

By October 15, 2014Uncategorized|VAT news


Direct mail is frequently used by financial institutions to target new customers, whilst many charities will use it to solicit donations.  As both types of organisations are unable to recover much VAT, they benefit significantly from the availability of zero-rating for printed matter.

For the agencies supplying these mail packs, the rules regarding zero-rating are complex, in terms of:

  • what types of printed matter qualify (and therefore, whether the mail pack qualifies overall);  and
  • the treatment of other services provided as part of the print process e.g. design, artwork, fulfilment and postage.  On their own, many of these services would be standard rated.  The question therefore arises as to whether they form only a minor part of the contract (“ancillary” to the main supply of printed matter), to enable them to be zero-rated as well.

The question of zero-rating has become even more important, since the changes which resulted in more postal services being subject to the standard rate of VAT – as the benefit of zero-rating as a single supply of printed matter has increased.

The debate with HMRC

The question of zero-rating these additional services has been the subject of much discussion between HMRC, individual taxpayers and representative bodies over the last two years.  Many agencies that supply mail packs to financial institutions or charities have been visited by HMRC anti-avoidance officers, whilst other agencies have contacted HMRC to obtain rulings on the VAT liability of particular supplies.

Many agencies consider that HMRC’s guidance is unclear in relation to:

  • the difference between zero-rating of “delivered goods” and the standard rating of “direct mail” services; and
  • the point at which additional services no longer qualify as “ancillary” to the supply of printed matter and therefore liable to VAT at the standard rate.

HMRC have attempted to clarify their position and recognise that past guidance has been unclear, with contradictory rulings issued.  Updated guidance is expected shortly and HMRC have indicated that from October 2014, they expect agencies to apply the zero-rate correctly.

Key considerations

That still leaves agencies with the question of which supplies qualify for zero-rating and this will be influenced by:

  • the terms of the contract with the customer;
  • the scope of the additional services – including the cost and time input relative to the print;
  • how the postage services are procured i.e. whether the agency is acting as a principal or merely as an agent between Royal Mail and the client.

Based on the above, we consider that it is still possible for some mail packs to qualify for zero-rating, although these are likely to be subject to scrutiny from HMRC.  As such, the VAT liability will need to be carefully considered for each type of mail pack being supplied to a client that cannot recover all of the VAT it incurs.  Although it is possible that HMRC will adopt a light touch in respect of past errors (given the lack of clarity in their guidance), this isn’t guaranteed it would be prudent to review all such contracts within the last four years, to avoid potential assessments and penalties.

For further information please contact:

Steve McIntyre  (

Rowena Clifton (

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