Think BR: Agencies be warned, the VAT man is coming

You may have assumed from previous clean VAT inspections that your usual application of nil VAT on such sales would be accepted. 

But HMRC’s Anti-avoidance Group has taken a different view in the case of certain agencies and has slapped in back assessments for millions of pounds. 

In one case the agency wasn’t large enough to absorb this cost, or cope with an appeal (you have to pay first, argue later, with HMRC), and went into administration. We’re not talking chicken feed. 

The basis of HMRC’s anti-avoidance challenge has not been tested in law so there is now a state of confusion about what does, and what does not, constitute a single supply of zero-rated printed matter. 

It means some suppliers are quoting business on one VAT basis while others now are concerned to quote on another. 

And clients themselves must be wondering whether there will be a subsequent VAT cost, especially if they only recover part of their VAT (clients such as financial services, healthcare providers or charities). 

A change in tax law requires due process that allows the business community to plan accordingly. 

To have differing interpretations of tax law not only leaves business confused but provides an opportunity for back-dated assessments which can – and have – crippled businesses. 

Further, these businesses are typically of the small to medium size operations that the government has pledged to foster in its attempt to improve the economy. 

Accordingly the IPA, DMA and BPIF, the three trade bodies representing those most affected, have made a submission to HMRC to clarify the VAT position for the supply of marketing printed matter, and believe the next Finance Bill provides the right opportunity to do so. 

Of course, the devil is in the detail, but the submission also offers the support of the three trade bodies concerned in drafting adequate explanations for suppliers and inspectors alike. 

Until that happens, any supplier of such marketing material runs the risk of having a visit from the VAT anti-avoidance team resulting in a bill going back several years, and thus for millions of pounds.

Alex Hunter is finance director at the IPA

There is more information on this process at the IPA website.