We have been retained by a financial services (so not VAT registered) client for around 7 years in the capacity of brand consultancy providing brand advice, management of the brand and to provide services such as graphic design, artwork and copywriting. For the most part we would work alongside their print supplier but we would always invoice separately for our design fees and the printer would invoice for their supply of goods. Often zero rated supplies.
On the odd occasion their printer could not deliver their requirement at the last minute we would source a print price from our supplier and provide print. Through a genuine (but silly) oversight when we have raised invoices for that printed matter we have added VAT and they have not queried it, paid it and we have paid HMRC. These invoices were always separate to our fee invoices.
Last week we were emailed from the client saying they had reviewed invoices from as far back as 2012 and wish to have a refund on the VAT paid on those items as they should have been zero rated. My first question is - can that happen and would HMRC allow us to do that if everything was seen as ok?
I am lead to believe we should have invoiced these at the purchase price and listed them as disbursements and zero rate the VAT. We did not do this, we sold them on and we invoiced these often with a slight increase to price to cover our storage costs and other overheads incurred by sourcing these items, which I am led to believe means the items stop being zero rated - however we never told our client the exact cost and we didn't invoice that exact cost as a disbursement so I assume we will have to give them the VAT we charged out of our own pockets?
As well as claiming a refund for the items we supplied and wrongly charged VAT on, they are also claiming a refund on our fees for time spent on any brochures in the last 4 years no matter if we supplied the end goods or not - which I categorically believe is unlawful unless we supplied the print? The printer did not sub contract us for the work. So our design fees (which include presenting concepts on more than one route) should be standard rate yes?
On the occasion where we have supplied print - because their supplier couldn't, we were not given a PO at the start of the project, nor were we asked to treat the hours differently to those within our retainer or any other project so that our fees would be zero rated and the print would be too (presumably as they didn't know this back then) so I'm at a loss how we can now go through invoices from over 3 years ago that cover a months worth of design jobs and establish what is zero rated and what is not - and what would HMRC say?
Thanks in advance.
Replies (7)
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Two issues:
1. you can adjust over-charged output tax for up to four years;
2. the supply of printed matter is zero rated. If that is what you supplied, then the supply is zero rated.
But do look at the guidance which applies when printed matter is provided as part of a larger standard rated supply.
Did your company design that Brochure ? If they did, I believe you will know the answer.
However cherry picking supply for zero rating, is not a speciality here, and you will need to seek advice.
A fairly recent High Court ruling (two years ago) overturned HMCE for Marriage and Event picture books which are now zero rated (not quite a brochure). This is a tricky area, and requires qualified / experienced advice.
The problem with the disbursement option is that you have added a profit margin, which breaches the VAT disbursement rules. So that leaves one problem.
The other issue remains whether the printed items are actually part of a single standard rated supply.
Or, were the other supplies part of the design and preparation of zero rated printed items?
I fear the line will be quite fine. And you will also have to take into account what the customer will actually pay for!
I wonder if the pragmatic option is to take an overview of what was supplied, and how much you are prepared to adjust.