The cost of paper for a print job is usually in the range of 30% – 60% of the total so paper price rises –which for many people take effect this week – are pretty significant. As a marketing business specialising in print management we buy paper from two main sources: our print suppliers and our office supplies.

It’s usually more topical to talk about rising fuel prices rather than paper, mainly because fuel amounts to as much as 35% of overheads for businesses that have to transport goods by road. So if you’re in the paper business at the moment, rising prices would seem to be even more of a major cause for concern.

According to the British Print Industries Federation (BPIF) paper prices have continued to increase since early 2010, against a backdrop of increased demand and a continued tightening of paper supply. The UK print industry is the world’s fifth largest producer of printed products and has a turnover in excess of £14bn. There are more than 10,000 companies employing around 140,000 people.

Several price rises have affected almost all printers sometime over the past 18 months. The overall levels of price hikes have been quite considerable for the majority. The problem for printers is balancing how many of the rises they can absorb and how many they can pass on to customers. Compared with 2009, prices have risen by around 30%.
Now another hike is about to take its toll and a Leicestershire printer told my colleague that, once again, the rise is going to have to be passed on to the customer.

He said that paper mills have explained that rising prices are due to changes in supply and demand conditions around the world. These changing conditions can be caused by a number of factors, including economic, political, meteorological, or geological.
Add to that the rising price of oil and there’s only one direction the price can go. But our printer also said that paper prices were on the rise before oil prices escalated and there was a view that paper prices were lower that they should be.

So one suspects the truth lies somewhere amid global crises, rising oil prices, economic uncertainty, natural disasters, and business opportunity. There’s so much you can blame, it’s probably a good opportunity to add a few pence to the price; probably too good an opportunity to miss.

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

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In response to this article I emailed Andrew Tribute to clarify a point.

AT: “the really interesting comment came when comparing colour variance from iGen3 to iGen4: the variance was only one Delta E Colour, variance between offset presses typically measures between three and five Delta E.”

CJ: “I believe that I am correct in saying that digital print is not encompassed within the framework set out by 12647-2. However, as you talk of variance, which is an impressive level produced by the iGen4, is the target Delta E comparable to the one set out for offset? And as such how do the printed results compare to the naked eye?”

AT: “I really cannot answer the question as my quote was taken from the quality control manage of one of the leading and largest photobook suppliers in the world. They  have HP Indigo 5500, Xerox iGen3 and iGen4 presses. His comment was purely on measurement of the results on the iGen4 taking account of page to page repeatability over a run. Since the company does not run any offset they cannot comment on how the output compares. In terms of 12647 digital print is not covered within 12647-2 nor in any of the other iterations of 12647. One day perhaps it will be! Sorry I cannot be of more help.” He adds, “One additional point. The variance of 1 delta E is better than can be achieved by offset however this is not surprising as there are far fewer variables in the digital process than the offset process.”

Well it appears that that day is about to arrive as prompted by this article gleaned from Printspeak.

This lead me to check it out with the ISO and it would appear that ISO12647-8 is ‘under review’ – The dawn of another new era I suspect!

Having been in the print industry for 23 years I have clearly seen many changes. However, the transformation that the industry is going through at the moment is unprecedented. Clearly the accounting period covered by the report is a little out of date but what it does do is highlight the fact that change has been well under way for some time and at this moment we are in a period of accelerated change. The rankings show that you you only needed sales of £452,000 to be included in the UK’s top 500 print businesses in 2009, in comparison to £859,000 in 2008 and £1.9m in 2007 – the point of entry into the list of the UK’s largest printing businesses virtually halving each year over the three year period, even taking into account merger and acquisition activity, is a shocking statistic.

Amazingly, in the word of Printweek columnist Darryl Danielli, it appears that there is hope “On the bright side, it appears that the smaller companies have had a positive impact on the average profit margin of the Top 500, with companies with sales of less than £2.5m typically notching up a 4% pre-tax profit margin – by far the highest of any of the turnover categories – proving that it really can pay to be small”.

Yes, proof that is does pay to be small – being able to be flexible, adaptable and to offer a personal service is clearly a good thing but do pre tax profits of 4% offer hope when credit has been crunched, paper costs are spiraling skywards and debtors are falling over more often than Emile Heskey on a good day?

Clearly the business of print production is unsustainable at this time and it will require print business owners to be more adaptable and open to change than ever before. Certainly the industry has been well known for the poor quality of its representatives and the need for training has never been highlighted more, but being able to add value to a print businesses proposition is key – closer ties and reduced levels of risk are the way forward for all.

Absolute madness… How can a business be so irresponsible and make such a fatal error? They might as well have done a KLF – set fire to the money - and profited from the publicity.

If you are in the business of mail order and home shopping then it is surely imperative to ensure that each and every name on your database is a potential purchaser. Even the postage alone does not come cheap. Then when you consider the production costs of a printed item, you are looking at a minimum of £10,000 wasted on 30,000 duff names.

Obviously, the solution would have been to run a suppression on the data, which would have cost up to 40p each but at least there would have been the chance to make a claim against the supplier of the list, not mail those names more than once, deal with the returns from the Royal Mail or have to deal with the elimination of the names in the aftermath.

If your organisation has not had a health check on its mailing list for 12 months then I suggest that you raise it with your marketing service provider who can do what your list managers should already be doing for you.

Mulberry Square can offer to run a mailing list health check for you as well as a comparison on the price that you are paying for your print, mailing and postage. We have many years of experience to offer in this field and would welcome the opportunity.