Graham Elliott, tax consultant at Withers, wrote that HMRC believes the service is ‘fully standard rated, and that the assumption that the end-to-end service involving a zero-rated “package” is fully zero rated does not conform with its policy’, with HMRC saying that ‘the supply is not a composite supply of goods to your customer, but is a supply of services as the “goods” are sent directly to the recipient rather than to your customer’.
While the DMA has warned its members of the difficulties they may face about this issue, Elliott further wrote: ‘[HMRC] appears to assert that the general zero-rated nature of the products being delivered cannot determine the treatment of the postal element because the act of posting material to the recipient is “at least as important as the printed material element”. The sole purpose of the delivery is to ensure that the printed material reaches the recipient. It is obvious, we think, that the postal service is entirely subservient to the goods being delivered, and does not have a free-standing purpose of its own.
‘All of this would be alarming enough if the analysis was that there were two separate supplies, one of zero-rated printed material, and one of the delivery service which happens to be standard rated. But HMRC then comments (without the clarity one would wish) that “the nature of the supply has changed and so it cannot take the same VAT liability [as the printed material]. As this supply does not fall within the zero or reduced rate, the whole supply must be taxed at the standard rate of VAT.” That reference to “the whole supply” seems to indicate that VAT applies also to the production of the zero-rated printed material … HMRC’s approach would appear intended to levy VAT on a supply which has generally been treated, hitherto, as completely zero rated. It seems to us that this lacks any justification.
‘Charities may find that their [direct mail] contract does not allow the fulfilment house to add VAT, and they should take advice on all of their contracts to see if they can resist the imposition of VAT on a retrospective basis under the contract. Whilst this may seem unfair on the fulfilment house, a charity is obliged not to pay more for the service than it has contracted to do, and therefore ought not to take the view that it wishes to “help out” a fulfilment house unless it has very good reasons based on its charitable purposes.’
Graham Elliott, tax consultant at Withers, wrote that HMRC believes the service is ‘fully standard rated, and that the assumption that the end-to-end service involving a zero-rated “package” is fully zero rated does not conform with its policy’, with HMRC saying that ‘the supply is not a composite supply of goods to your customer, but is a supply of services as the “goods” are sent directly to the recipient rather than to your customer’.
While the DMA has warned its members of the difficulties they may face about this issue, Elliott further wrote: ‘[HMRC] appears to assert that the general zero-rated nature of the products being delivered cannot determine the treatment of the postal element because the act of posting material to the recipient is “at least as important as the printed material element”. The sole purpose of the delivery is to ensure that the printed material reaches the recipient. It is obvious, we think, that the postal service is entirely subservient to the goods being delivered, and does not have a free-standing purpose of its own.
‘All of this would be alarming enough if the analysis was that there were two separate supplies, one of zero-rated printed material, and one of the delivery service which happens to be standard rated. But HMRC then comments (without the clarity one would wish) that “the nature of the supply has changed and so it cannot take the same VAT liability [as the printed material]. As this supply does not fall within the zero or reduced rate, the whole supply must be taxed at the standard rate of VAT.” That reference to “the whole supply” seems to indicate that VAT applies also to the production of the zero-rated printed material … HMRC’s approach would appear intended to levy VAT on a supply which has generally been treated, hitherto, as completely zero rated. It seems to us that this lacks any justification.
‘Charities may find that their [direct mail] contract does not allow the fulfilment house to add VAT, and they should take advice on all of their contracts to see if they can resist the imposition of VAT on a retrospective basis under the contract. Whilst this may seem unfair on the fulfilment house, a charity is obliged not to pay more for the service than it has contracted to do, and therefore ought not to take the view that it wishes to “help out” a fulfilment house unless it has very good reasons based on its charitable purposes.’
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