Q:
As a customer I receive VAT invoices from suppliers.
I had some leaflets done for my business. I understand leaflets are zero rated but am confused as to how this works in practice. The company who supplied the invoices charged me 20% VAT saying that they are the distributor of the leaflets so they have to charge std VAT. I thought that as the leaflets are zero rated the distribution of them to me (in bulk) would be an onward supply so the VAT rate should be that of the goods ie zero?
Any advice to help me understand or pointers where to read would be hugely appreciated. I have read S30 of VAT Act and can see the products that are considered zero rated for tax but am unsure how this is applied in my case?
Thank you
A:
Hi
I don’t know of any reason why the supply would be standard rated because the suppliers is the “distributor” of the leaflets. The zero-rating doesn’t depend on who is selling the leaflets, it’s the goods themselves that define the liability in the case of printed material.
Two things come to mind – have a look at VAT notice 701/10: Zero-rating of books etc http://tinyurl.com/p6qsc4r, which explains the rules about zero-rated printed material. Section 3.3 explains the liability of leaflets so make sure your leaflets fall within the HMRC definition. The only reason it wouldn’t would normally be because it has areas to be completed, like an application form, in which case it would be standard rated if the area for completion is more than 25% of the whole document, as explained in section 3.4 of the notice.
The other thing is whether the distributor is acting as an “agent” for VAT purposes, in which case their mark up or “commission” would be standard rated under teh normal rules. The whole areas of agency gets a bit confusing for VAT purposes and sometimes both businesses and HMRC officers get confused because they don’t fully understand the legal and commercial arrangements properly. But if your supplier is showing only one charge, for the sale of the leaflets, I can’t see any reason why they have to charge VAT. It’s just the same as going to buy a book from WH SMith. The fact that WH Smith is the retail distributor and didn’t print or otherwise manufacture the book doesn’t change the VAT liability of the book, which is zero-rated.
There is some guidance about agents in HMRC’s VAT Notice 700: The VAT Guide, section 23, http://tinyurl.com/9ykqw. It is quite a technical section of the notice and hopefully you won’t have to go down this route with your suppliers.
You can always write to the VAT Enquiries section at HMRC and ask them for their opinion. Only thing is that they don’t normally give “rulings” to customers, but they may agree in principle with your interpretation of the liability.
I hope this helps you sort things out – I’d be interested to hear what your supplier has to say if he still refuses to credit the VAT.
Marie