Court case could lead to reduction in cost of direct mail

17 Apr 2018 News

A recent decision by the VAT tribunal could lead to a cut in the cost of direct mail for charities, and could let some charities and agencies reclaim big tax bills.

The decision, in the case of an insurer, concerns the printing and delivery of insurance packs – very similar to charity fundraising packs, which in 2014 were subject to a change in VAT treatment by HM Revenue & Customs that raised costs for charities and left some facing significant one-off bills.

Graham Elliott, a VAT consultant with City & Cambridge, and an adviser to the Charity Tax Group, has said he believes that the recent case of Paragon Customer Communications v HMRC, at the first tier VAT tribunal earlier this year, shows that this decision was wrong.

The decision would have cost the sector tens of millions of pounds if charities had not successfully lobbied for exemptions. As it was, several suppliers still faced six- and seven-figure financial penalties, much of which they passed on to their charity clients. 

Several suppliers were unable to pay and were forced into administration.

Charities were able to restructure their arrangements with suppliers in a way that has led to relatively small increases in VAT bills in the long term, but the changes are still likely to have cost the sector well over £1m a year.

However, all of that could now be reversed. Elliott says the parallels between the Paragon case and charities’ situation are “striking” and that if the case is not appealed, or if the Upper Tribunal supports the first-tier tribunal’s view, then it is likely that HMRC will have to change its guidance.

“All of this has visited a great deal of difficulty on charities and their printers, and wasted a lot of their time,” he said. “If this decision is upheld then all of that will have been proven unnecessary.”
 

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