The DMA flagged the potential "VAT timebomb" in August when it revealed that suppliers to charities and financial services businesses that had combined postage and production costs in a practice known as "single sourcing" could face crippling backdated VAT bills.
Recent correspondence from HMRC and the financial secretary to the Treasury David Gauke suggests that there will be no retrospective charge, but that printers who fail to correctly apply VAT to postal costs will face charges from 1 October.
Gauke wrote: "I understand that, for cases where the incorrect treatment has been applied, HMRC will...be sympathetic to specific circumstances where direct marketing services may have been incorrectly zero-rated, but only to the extent that they include printed matter that may be separately zero-rated."
However, while this ranks as a win for the DMA, HMRC's response on the related issue of whether the zero-rating for the supply of printed matter can be extended to postal costs via single sourcing was unequivocal.
HMRC senior policy advisor Keith Parnell said: "If someone is making a supply involving printed matter we have to consider exactly what is being provided, i.e. the essential features of the supply and the other services involved in order to decide if it can be regarded as one of printed matter only.
"If the other services are artwork, design or similar leading to the supply of printed matter then HMRC would generally accept that this is a zero-rated supply of printed matter.
"However, if the other services include activities such as data handling, data management/processing, targeting of potential customers, distribution, media inserts, response recording and analysis, follow up to responses and similar then the essential features are likely to show that it is more than a supply of printed matter."
HMRC has said that it expects all supplies "to be treated correctly from 1 October 2014".
DMA director of external affairs Mike Lordan said: "Judging by the tone of the responses we’ve received from the Treasury and HMRC, we’re confident that we’ve achieved our first objective – which is companies that have incorrectly applied the VAT rules won’t be penalised retrospectively for 'misinterpreting' the HMRC guidance.
"Unfortunately, our second objective – clear guidance – is proving harder to achieve. We also disagree with HMRC’s reiteration that postage cannot be included in single sourcing. This remains a major threat for charities and businesses that use advertising mail. We’ll continue to work with legal and tax experts to represent the interests of all advertising mail users."
DMA postal affairs consultant Alex Walsh said that the question of whether ad mail could be zero-rated via single sourcing was "becoming increasingly technical" and that there was "a lot more argument to be had before we reach a final resolution".
Asked whether mailing houses should apply VAT on postage for all ad mailings from 1 October (to avoid any potential charges in future), Walsh said: "If I was a DM printer and not at risk of losing business then I would play it safe but if I was at risk of losing business [because other firms are continuing to apply zero-rating] then I would continue until such time as HMRC issues new guidance."
He added: "A letter to a trade association is not the way to tell people how to interpret the rules. The way it reads at the moment is confusing and open to interpretation and I still maintain that they've got to publish something on their website clarifying what the law is."
