Charities that regularly use bulk mail should be able to avoid VAT bills on most of the cost, according to a Charity Tax Group adviser.
Since 2 April, charities have had to pay the standard rate of VAT on bulk mail services from the Royal Mail – a move estimated to cost the sector £18m a year.
But Peter Jenkins, VAT adviser to the CTG, said he had received confirmation that charities could avoid most of this cost by using 'downstream' mailing services.
This involves paying a private company to sort mail and deliver it to a Royal Mail depot. The private provider will then pay the Royal Mail to take the post to the door.
The Royal Mail does not charge VAT if it provides only this 'final mile' delivery service, said Jenkins, even though it makes up almost all of the cost of bulk mail services. This is because this part of the journey - unlike the sorting and delivery - is not subject to competition.
Although the charity would have to pay VAT on sorting and delivery to the depot, he said, this service was very cheap compared to the 'final mile'.
"This mechanism won’t help every charity," he said. "For this to work, a charity must be able to do a deal with the bulk mail provider, and that means they must have reasonably large guaranteed volumes."But those that do have that volume can use this to avoid most of the added VAT cost."