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VAT Voice by Andrew Needham

Andrew Needham, Director of VAT Solutions (UK) Ltd, highlights a recent VAT Tribunal decision that has helped to clarify the position regarding the VAT liability of mail packs containing both letters and leaflets.As with most things in VAT, there is little logic in the VAT liability of printed matter. If you are involved in sending out advertising literature, this decision could affect you. The basic position is that the printing of a letter is standard rated, while the printing of a leaflet is zero-rated. HMRC has a published concession that relates to packages of ‘printed matter’. Under the concession, a package of printed matter is treated as a ‘mixed’ supply of goods, with the VAT liability determined by the predominant element. For example, if the package consists of four leaflets and a covering letter, the leaflets are predominant, thereby making the whole package zero-rated.

Standard rated or zero-rated?

In the Tribunal case of Charterhall Marketing Ltd (No 19,050), the appellant produced two different ‘packages’ of material for Halifax plc. One consisted of a personalised letter advertising an insurance product, and a second package consisting of a personalised letter and two leaflets. HMRC contended that both items were standard rated, on the basis that the letter was the principal item. Both parties accepted that the first item consisting of only a letter would be standard rated, but the taxpayer contended that the second package was zero-rated as it consisted predominantly of zero-rated leaflets.

The Tribunal noted that the ultimate consumer of the printed matter was not Halifax but the recipient of the mail pack, and that there was no taxable supply between Charterhall and the ultimate customer. Charterhall’s reasoning was, therefore, an important consideration. It followed that whatever documents had to be read together and the cross-references that existed between them, became less significant. The Tribunal found, therefore, that rather than a mixed supply being made, there was a multiple supply of a letter and two leaflets. Accordingly, they found that the letter was standard rated, and that the two leaflets were zero-rated on the basis that the letter and the leaflets were of equal importance.

In most cases, businesses can recover the VAT on their purchases, so they would only suffer a small cashflow disadvantage having to pay the extra VAT. However, if the business is not able to recover some or all of its VAT because it makes exempt supplies (e.g. financial services, insurance brokerage or children’s nursery care), the additional VAT would become an extra irrecoverable cost to its advertising budget.

So, to summarise, there are still ways in which you can minimise your VAT costs on printing.

Tip 1

If you are going to produce a leaflet with a section designed to be detached and completed, make sure that the section to be detached is less than 25% and you won’t be charged VAT.

Tip 2

If you ask the printer to produce the whole lot as a ‘package’ for a single price, the printer can calculate the VAT liability of the complete package based on the article that predominates within it. HMRC considers that a ‘package’ is “a collection of printed matter enclosed in some sort of wrapper”. For example, if the items were contained in a paper or polythene envelope or a cardboard folder. In this case, the main items are zero-rated, and so the whole package can be supplied free of VAT, thereby avoiding the VAT costs on printing the forms and business cards.

The VAT liability can be determined either by the number of articles that are zero or standard rated, the individual cost of the items, or by the items of most significance.

October 2005

Andrew Needham
Director, VAT Solutions (UK) Ltd
Email: andrewneedham@vatsolutions-uk.com

VAT Solutions (UK) Ltd
11 Winmarleigh Street,
Warrington,
WA1 1NB

(T) 01925 242497
(F) 01925 242498
(M) 07810 433927
(W) www.vatsolutions-uk.com

VAT Solutions (UK) Limited is an established independent firm of Chartered Tax Advisers, formed by Andrew Needham and Steve Allen. The company has a cross-section of clients from multi-national companies through to medium-sized and numerous smaller regional firms of accountants and solicitors. They produce a regular publication 'VAT Voice', which can be downloaded directly from the Internet via the following address: www.vatsolutions-uk.com/newsletter.doc