VAT on bulk mail threatens to bring big rise in postal costs

Measure announced in Budget will apply from 31 January

Charities that send out bulk mail could see a large rise in their postage costs after an announcement in the Budget that the standard rate of VAT must now be paid on many postal services.

The costs will apply from 31 January 2011 and are intended to cover all mail services that are open to competition, including bulk mail.

Hannah Dobson, tax director at financial services provider Smith & Williamson, said charities and not-for-profit organisations were among those most likely to be hit by the change.

The imposition of VAT had been expected in the wake of a European Court of Justice ruling on a case brought by mail service provider TNT last year.

The ECJ ruled that it should be applied to postal services that are subject to competition.

Businesses are in dispute with HM Revenue & Customs over whether their existing postal contracts included VAT.

Dobson said tha,t depending on the outcome of the dispute, charities might be able to claim that their existing contracts already included VAT, and that payments dating back a number of years should have been repaid.

"The ECJ ruling meant a number of organisations lodged retrospective VAT reclaims, but I would urge any charities that fear they may be affected by the change to review their contracts with Royal Mail and seek a claim where appropriate," she said.

Helen Donoghue, director of the Charity Tax Group, said the position for charities that had postal contracts, either with Royal Mail or another provider, was unclear.

"Those charities that have bulk postal agreements need to study the technical notice carefully to ensure, wherever possible, that they still benefit from exempt services," she said.

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