H M Revenue & Customs have confirmed to the Charity Tax Group that it is extending a transitional period during which a retrospective concession relating to VAT and direct mail will apply.

The Charity Tax Group (CTG) announced that the concession would end on 31 July 2015 and also reported that HMRC was planning to publish a briefing that explains changes to relevant VAT notices.

In April 2012, HMRC stripped bulk mail of its VAT-exempt status. Since then, many advertising mail suppliers have used single sourcing – which combines postage and production costs – to remove VAT liabilities for charities, which cannot claim back or charge VAT.

In August 2014, HMRC wrote to the Direct Marketing Association (DMA) trade body – which had been lobbying for guidance on whether it would exempt single sourced advertising mail from VAT – saying that the cost of both postage and production would be at a standard VAT rate of 20 per cent.

In October last year, following discussions with the DMA and CTG, HMRC chose to give organisations until 1 April 2015 to continue using existing arrangements and put alternatives in place. Organisations using single sourcing to mitigate VAT liabilities were spared retrospective fines following an agreement brokered by the DMA and CTG.

John Hemming, CTG chair said: “We welcome HMRC’s decision to extend the transitional period until the end of July. This follows a recent meeting with HMRC where we made it clear that it was unacceptable for charities to be expected to implement new rules without updated guidance having been published. We remain in discussions with HMRC about the exact scope of this concession and will continue to seek the fairest outcome for charities.”

Charities that are affected by this news and are looking at ways to develop may find it helpful to discuss their options and financial issues with professional advisers that specialise in this area. For more information on how Milsted Langdon’s charities team can help, please contact us.