Fundraising agency Bluefrog Limited has shut down after an HMRC investigation discovered the company had £2.1m in historical VAT payments outstanding. But its founder has launched a new company under a similar name to continue.
Mark Phillips, managing director, said the company shut in April, but all the company’s work and staff have been transferred to a new company, Bluefrog Fundraising.
In 2014, HMRC clarified its position on direct mail fundraising, to say that charities which had contracts including printing, production and delivery - known as 'single sourcing' contacts - had to pay 20 per cent VAT.
Charities had previously believed these contracts were zero-rated for VAT.
Unaward of changed position
But when HMRC inspected Phillips’ former company last summer, he was unaware of HMRC's changed position.
In a blog, Phillips said his former company had passed all five VAT inspections it had received since it opened 19 years previously so was surprised to receive a letter advising it to check all its invoices.
“So after this shocking revelation, we obviously took advice from legal and financial specialists and spoke to other suppliers and clients.
“But at the end of the process, we found ourselves in a position where we could either agree with the opinion of HMRC or face a long and expensive battle that, sadly, Bluefrog’s pockets weren’t deep enough to accommodate.”
Bluefrog Limited could not afford to pay the £2.1m owed to HMRC so was forced to close.
“I don’t think I’ve ever faced a more difficult and soul-destroying decision in my life,” said Phillips.
But, with the agreement of an administrator, all Bluefrog employees were transferred and work in progress was sold to Phillps’ new company, Bluefrog Fundraising.
He says all the closed company’s suppliers have been or are being paid in full for their work and its service to charity clients, including Parkinson’s UK, RSPB and Barnardo’s, would be uninterrupted.
Phillips said the new company is fully funded and is following the new interpretation of VAT rules.
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'Don't hide your head in the sand'
He also warned fellow fundraising agencies to ensure they complied with HMRC’s current understanding of VAT regulations and said he was happy to speak to any who wanted advice.
“Whatever you do, don’t hide your head in the sand. Make sure you receive the best advice possible and be straight with HMRC.
“They aren’t unsympathetic, but they will not be turning a blind eye to organisations that apply the old interpretation of the VAT regulations, no matter what anyone says.”