Here at Mulberry Square we are, believe it or not, absolutely passionate about VAT legislation. Why? Because as experienced project managers we have learned that there is always a creative approach to structuring a project that will enable businesses to enjoy fantastic savings whilst remaining entirely on the right side of the law.

Earlier this month there was a fascinating development regarding what’s known as the zero rating of books, which is essentially concerned with the 0% VAT applied to certain printed matter. It’s a complex subject to put it mildly, so while I’ve done my upmost to keep it as straightforward as possible, you may still feel certain aspects require further explanation. In which case just leave a comment below and I’ll respond asap.

The legal stuff

The UK Treasury has announced VAT anti avoidance measures aimed at preventing the artificial splitting of supplies that include printed matter.

Or in other words…..

If a company sells a package that contains printed matter (which unlike most goods can be subject to 0% VAT), they cannot buy that printed matter from a different source in order to avoid VAT.

Hmm, still a bit confused? Well let’s illustrate with an example…..

If a company is charging one price to a customer for a packaged service – let’s say a television that’s accompanied by a paper manual and various other leaflets – that company will charge one price (that is inclusive of VAT) to their customer. However, if they artificially split their supply process, they could avoid paying VAT on the printed material (due to the zero rating of books). So while the end customer pays the full VAT amount, the company pays VAT for the television but not the printed matter.

The objective of the new measure is to prevent this situation from occurring as it is considered an unfair tax advantage.

What does this mean for you?

Unless you were one of the minority benefitting from this particular loophole, then it probably doesn’t mean much at all. However, what’s really interesting about this development is that having reviewed the regulations, they have opted to keep everything else the same!

For a long time there have been a variety of ways that a skilled project manager can enable a business to keep VAT payments to an absolute minimum; which, when you consider the imminent increase to 20%, is of huge significance!

So where do the main opportunities for savings remain

The first point to make is that this is primarily of importance to those businesses that are not VAT registered, as companies that are VAT registered can of course claim back their VAT regardless.

The legislation in question, known as the zero rating for books, is therefore of most importance to those non-VAT registered businesses that purchase significant volumes of printed material, as they too can then avoid paying VAT. Eligible items currently include books, leaflets, brochures, newspapers, printed manuscripts and maps.

For most businesses, however, these purchases are unlikely to account for a significant proportion of overall spend. However, things aren’t as simple as they may at first seem. What makes the legislation particularly interesting is the implications for transactions with more than one element, where the printed matter is considered the primary item. If that is the case then there may be the possibility for the other “ancillary” items (which would otherwise be subject to a rate of 20%) to also be eligible for the zero rate!

These things are always best explained with an example. Imagine therefore that the printing of a leaflet requires certain design and photography services. Perhaps there is a special package deal which means there is no separate pricing for each of the component parts, and the photography and design can reasonably be considered ancillary to the principal item (a means to an end from the customers’ perspective, rather than an ends in itself) which in this case is the leaflet. The outcome could be a 0% VAT across the entire package!

Proceed with……..

Yes the opportunities for savings are great. But as this recent proposal demonstrates, the HMRC are not in the habit of casually letting people save more than that to which they are entitled. So if you’d like to discover how the appropriate application of these rules could be used to benefit your business, please don’t hesitate to give us a call and our experienced project managers will ensure you maximise your savings whilst adhering to the most current laws and guidelines.

Craig