After a long and uncertain wait, HM Revenue & Customs (HMRC) has confirmed that there will be a 20 per cent tax on direct mail; the charity sector’s biggest source of marketing and fundraising.

While many of those in the business sector have taken their advertising online, more than 61 per cent of charity marketing spending is on direct mail.

Previously, most direct mail providers have charged zero VAT on single sourcing contracts. This is where one provider offers printing, sorting and postage of direct mail. However, under the changes, charities that have single sourcing contracts for production and postage of their direct mail will now have to pay VAT at 20 per cent.

This comes after HMRC sent a letter to the Direct Marketing Association in the summer saying it believed VAT was due on direct mail at the standard rate. The change is expected to cost the charity sector around £20 million a year and retrospective charging could cost some firms up to £700,000.

Stephen Pidgeon, a fundraising consultant and former trustee of the Institute of Fundraising, said that if a 20 per cent increase in costs were introduced, it would cause severe problems for charities.

“The headline would be ‘Government taxes charity fundraising’. That is how stupid it would be,” he said. “It would pretty much kill cold direct mail and it would make it very difficult to do any form of paper-based direct fundraising. It would really slaughter charities.”

At Milsted Langdon, we appreciate the importance that direct mail services play in your organisation. Our team of highly qualified accountants and tax planners are here to help you prepare for the changes and deal with retrospective VAT charges. To find out more, please contact us.