What does VAT mean to you? Very Awkward Tax? Vaguely Ambiguous Tax?
There is a tendency for print suppliers to follow the path of least resistance when dealing with how to charge VAT to customers. 20% on everything. This is not only incorrect, but an opportunity lost.
Many of the large users of print and direct mail are unable to reclaim VAT. This includes banks, building societies, insurers, health providers, betting and gaming companies and charities, amongst others.
Would you throw away a 20% off voucher?
So, put yourself in your customer’s shoes. They get one quote from Supplier A which simply says “Subject to 20% VAT“. They get another from 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 how does all this work then?
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.
Suddenly we are talking about seriously large marketing budgets, and who doesn’t want to be able to save 20% of that? If you are not pro-actively tackling VAT mitigation for your customers, there is a competitor who will be.
Can I just look it up on Google?
Perhaps the issue for many printers is that VAT is a sideshow, an unwelcome distraction. Something that has to be dealt with if a customer complains. Then some lucky individual is tasked with trawling Google to look for an answer. “Is there VAT on 8pp 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. What’s that now? MAKE 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. Here’s how:
Any pound not spent on VAT is a pound saved. That equates to either 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 it matters not how big the customer or the supplier is, the expertise when it comes to VAT mitigation is often sorely lacking. The phrase “well that’s how we did it at my old place” springs to mind.
The fact is a lot of printers are actively involved in VAT mitigation and doing it well. But there are many many more who aren’t, or are doing it badly. At best, it’s lost business, at worst it’s a compliance issue and a potential VAT bill 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.
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 who you supply it to. 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.