Changes to VAT on bulk mailings will cause bills for some charities to increase from April

But HM Revenue & Customs will not ask for payments of the tax not made because charities misunderstood the rules, which the Charity Tax Group says could have run to millions of pounds

Direct mail
Direct mail

Changes to VAT arrangements on the creation and distribution of bulk mailings will come into force on 1 April, resulting in some charities facing increased bills.

But HM Revenue & Customs will not ask charities for payments of VAT they had not paid as a result of misunderstanding the existing rules, which could have run to tens of millions of pounds, according to the Charity Tax Group.

Detailed guidance on HMRC’s revised position will be issued early next year and will come into force on 1 April, the CTG said.

Both the CTG and the Direct Marketing Association have been urging HMRC for assurances both on the future treatment of bulk mailings and the possibility of the revenue billing charities hundreds of thousands of pounds in backdated VAT payments. Discussions over the matter began in 2012.

The groups said they understood that the printing and preparation of direct mail packs and certain other services would continue to be exempt from VAT after 1 April, but that VAT would be charged on other parts of the process, including design and creative services or mail list selection.

Previously, charities that outsourced the process to an external supplier could combine all these costs in order to avoid paying any VAT at all. Charities may continue to do so until 31 March, but should also plan for their future arrangements under the new rules.

John Hemming, chair of the CTG, welcomed the delay in the implementation. "This is excellent news because it gives time for charities to put in place revised arrangements to meet the deadline," he said.

He also welcomed HMRC’s assurance that charities would not be served with retrospective bills if their past arrangements were now considered illegal. Hemming said: "Ten of our members had calculated that their retrospective liability could have been as high as £6m – the impact for the whole sector would have been tens of millions."

Across other sectors using direct mail, the total liability for backdated claims from HMRC "could have run into hundreds of millions of pounds", according to Mike Lordan, director of external affairs at the DMA. He said: "We now also have the unambiguous guidance that we have been seeking that will allow all suppliers to compete on a level playing field.

A spokesman for HMRC said: "We accept that there has been genuine confusion about the borderline between supplies of zero-rated printed matter and standard-rated direct mailing. We will be writing to both the CTG and the DMA on the point and will issue new guidance that provides greater clarity on our policy. We expect any business making such supplies to apply that guidance no later than 1 April 2015."


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