HM Revenue & Customs (HMRC) has updated its guidance on direct mail to provide more clarity and to offer more protection to charities that may have faced a retrospective tax bill. In the guidance it says that printing and mailing companies offering ‘additional services’ such as targeting specific age groups or regions, will have to charge their customers VAT at the standard 20 per cent rate.
This will make a massive difference to clients such as charities, which it has been estimated could miss out on VAT relief to the tune of £300m annually. Charities already face an annual VAT bill of around £1.5bn, so the change will be a massive blow.
Direct mail providers have been waiting since 2013 for HMRC’s decision on the VAT treatment of charitable direct mail, which is currently zero-rated. Initially the new approach was supposed to come into force last October but that was deferred to April this year and then moved again, as the department had not produced the promised guidance. Now this has been published, the changes are set for August 1.
The Charity Tax Group is trying to persuade the Revenue that its guidance might not be correct in law but, if it can’t, then it will be down to the courts to make a ruling if some charities decide to challenge the guidance. However, the department says it is confident that the position set out in its guidance is legally correct.
The larger fundraising organisations are seen as the most vulnerable group, as they carry out regular direct mail campaigns. However, as one charity adviser said, it will require some ingenuity for charities to mitigate VAT charges from next week.