Finance News: VAT on post will push tax bills up

Charities will be hit by tax hikes of up to £110,000 a year if the Royal Mail is forced to start charging VAT on postage, according to the Charity Finance Directors' Group.

The umbrella body has submitted its response to post regulator Postcomm's review of the Royal Mail' s exemption from VAT.

Postcomm has said it does not see why the VAT exemption is necessary (Third Sector, 28 January).

But the CFDG claims the loss of the tax-exempt status would be devastating for many charities as they cannot reclaim VAT.

One care charity told the group that it would cost it £110,000 annually.

Another charity with a £5m turnover said it would be £18,000 worse-off, while a small membership charity said its postal costs were 10 per cent of its overheads.

The CFDG wants the Government to follow a recommendation from the European Parliament and introduce a relief scheme for charities, if the Royal Mail starts charging VAT on post.

Policy and campaigns officer Sophie Chapman said: "If Royal Mail does lose its tax-exempt status then we urge the Government to recompense charities for any financial loss. The effect in the short term at least could be devastating for many charities."

The Postcomm review has been ordered because, while Royal Mail does not charge VAT on postal services, rival postal operators have to, putting them at a disadvantage.

Helen Donoghue, administrator of the Charities' Tax Reform Group, said the lobby group was not opposed to the abolition of the Royal Mail's tax-exempt status on principle, but would be against it if it increased the cost of postal charges to charities.

"Although the UK Government has said it will veto any proposal that results in VAT being added to the cost of stamps, we are concerned that charities may be regarded as business customers, and could be charged VAT at the full standard rate."

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