There is a tendency for print suppliers to follow the path of least resistance when deciding how to charge VAT to customers. They put 20% on everything. This is not only incorrect, but an opportunity lost. Print industry VAT consultant Paul Osborne explains.
Many of the large users of print and direct mail are unable to reclaim VAT which is why they are keen to not pay it. This includes banks, building societies, insurers, health providers, betting and gaming companies and charities, amongst others.
Would you throw away a 20% off voucher?
Put yourself in the shoes of a customer who cannot reclaim VAT or may only reclaim a small proportion of it. They get one quote from printing supplier A which says: "Subject to 20% VAT.” They get another quote from printing supplier B which says: "Subject to 0% VAT.” Which quote is the most attractive? In an economic climate where print margins are tight, supplier A could be unwittingly pricing themselves out of the running. So what is supplier A doing wrong?
Certain items of printed matter are zero-rated by law. This means that although they are ‘taxable supplies’ the rate of VAT is 0%. Example items include leaflets, booklets, brochures and pamphlets. This may seem like a narrow list but it actually covers a wide range of printed products, and by a concession available to the printing trade, extends to correctly formatted direct mail packs.
Saving 20% of a large marketing budget is a big financial gain for advertisers. If you are not pro-actively tackling VAT mitigation for your customers, there is a competitor who will be.
Can I Google it?
Perhaps the issue for many printers is that VAT is a sideshow. An unwelcome distraction until a customer complains. Then some lucky individual is tasked with trawling the internet to look for an answer. Is there VAT on leaflets? What if there is a response device? What if it is green with purple spots?
HMRC's guidance can be fairly daunting and seeking professional advice might be a long way down the list of priorities. After all, it costs money right? Well yes it does, but it can also make you and your customers money. Well, if making money is measured by increased sales/profit for you and increased return on investment for your customer, then yes!
Here is the less than magic formula. It’s all a question of knowledge and as is often the case with such matters, a little knowledge is a dangerous thing. With the right approach, and a modest short term investment, printers can put themselves in a position to really step up their market reach.
For clients who cannot reclaim VAT or reclaim only a small proportion, any pound not spent on VAT is a pound saved. That equates to a better return on investment or frees up additional marketing budget that your customer can reinvest - with you.
Increase your conversion rate on new business tenders and pitches by building a strong VAT mitigation strategy in to your proposal. There's no point going head to head on quality, credentials and technology if you aren't in the ballpark on price for a VAT sensitive customer.
Why isn't everyone doing it?
In our experience the expertise and knowledge required for VAT mitigation is often sorely lacking. Commonly VAT mitigation is justified by the phrase: "Well that's how we did it at my old place.” Such unsupported reasoning can be found in large and small businesses and is not useful when trying to justify to HMRC why certain VAT treatment was applied.
A lot of printers are actively involved in VAT mitigation and doing it well. But there are many more who aren't, or who are doing it poorly. At best, they lose business to more VAT knowledgeable competitors. Worst case scenario is a bill from HMRC with penalties to boot.
If this article is news to you then perhaps you need to explore further.
Fact or fiction?
It's a fact that there are huge differences in (unqualified) opinion about what is right or wrong when it comes to VAT mitigation.
It's a fact that HMRC have taken different approaches at different times when applying policy in the industry.
It's fiction that charities don't pay VAT. Apart from a narrow range of concessions for certain items of printed matter used for appeals, charities should be charged VAT in the same way as any other business.
It's fiction that zero-rating or the "Package Test" no longer exists. This is the sort of stuff peddled by printers who've got burned in the past because they were getting things wrong in the first place.
It's a fact that the rules are not straightforward. There are many subtle variations in print formats, contractual arrangements and procurement methods which affect VAT liability.
It's not for everyone
If all your customers can reclaim VAT then understandably you won't be going out of your way to avoid charging it. That said, a zero-rated leaflet should be zero-rated no matter to whom you supply it. After all, it's the law.
Where to get help?
An internet search will probably land you with more questions than answers, however help is at hand. HMRC provide various online publications though they are not light reading. If you are a member of either the DMA or IPIA you can take advantage of their free VAT support services by sending an email as shown in the links.
If you are in any doubt you should seek professional advice.
Paul Osborne is a partner at Zero VAT LLP, specialist VAT consultants to the print and direct marketing industry. As Chair of the DMA West, Wales & Midlands Council, Member of the IPIA and Fellow of the Institute of Direct and Digital Marketing, Mr. Osborne is actively involved in raising awareness of VAT mitigation and compliance within the industry.