Many might welcome tough new rules on direct mail operations but a Midland financial expert has warned one aspect may seriously affect charities.
Helen Drew, Midlands partner at national audit, tax and advisory firm Crowe Clark Whitehill, has warned a new tax ruling on direct mail operations could have a significant impact on charities.
At issue are the VAT implications of bulk mail, used by many charities when sending direct mail for fundraising purposes.
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Production of printed materials is normally zero-rated, while postage is standard-rated.
HMRC previously accepted that when supplied together as a ‘composite supply’ these services were both zero-rated.
Now HMRC has stated that the whole service, both production and postage, will be standard-rated, which would raise the cost of sending promotional material to supporters by 20 per cent.
It could also mean that charities that have not paid VAT on direct mail for the last two years could face backdated charges.
Ms Drew, who heads up Crowe Clark Whitehill’s Not for Profit team in the Midlands, cautioned: “This is a major change in policy by HMRC. We are not talking about a change in the law, just a change in HMRC’s view of the law.
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“If HMRC maintains its policy change, the increased 20 per cent VAT will have a significant financial impact on charities.”
“We believe HMRC has probably erred in applying its policy change retrospectively, and that it will take a formal change or detailed guidance to be issued to see VAT being applied going forward on mailings.
“However, the change appears likely to happen, and charities should look to maximise the opportunity for their present supplier to consider restructuring the postage supply – either as a disbursement or from a secondary supplier.”