Under new regulations charities will face increasing postal costs of nearly £18m as VAT will now be charged on bulk mailing.

Regulatory body Ofcom has announced the removal of price controls on bulk mailing, and while under current HMRC regulations postal costs are exempt from VAT, this will no longer be the case as of 2 April 2012. Charities which rely on bulk mailing for fundraising purposes will be liable to pay 20 per cent VAT.

The Direct Marketing Association (DMA) has warned that the increases could have major consequences to charities. Chief of operations Mike Lordan said: “The prospect of fundraising mail VAT changes is a serious financial issue for charities, but the industry is being left in the dark by HMRC and Royal Mail who have yet to clarify the details about the changes.”

In 2010 charities spent £256m on direct mail with postage accounting for 35 per cent of this total (£89.6m). The DMA has estimated that the Royal Mail changes will leave UK charities liable for an extra £17.9m in VAT every year.

The uncertainties surrounding this could lead charities to abandon bulk mailing completely in favour of email or other marketing media, according to the DMA. It reports that there has already been a price increase on bulk mailing of 15 to 20 per cent in 2011. One potential way of charities factoring in these costs would be a grace period with price increases being introduced gradually, it advised.

The Charity Tax Group has reacted to these changes by reconvening its VAT treatment of postal services working group. It will be looking to collect information on individual charities and potentially challenge the new regulations. No date has been set for the first working group meeting.

The decision to declassify bulk mailing as a ‘Universal Service’ by Postcomm in August meant that by law Ofcom could no longer enforce price control regulation. Ofcom took over from Postcomm as the regulatory body for the Royal Mail on 1 October 2011.