HM Revenue & Customs has agreed to extend until 31 July a transitional period during which it will not charge 20 per cent VAT on direct mail sent by charities, the Charity Tax Group said today.
HMRC said last year that from the start of this month, charities would have to pay 20 per cent VAT on up to £400m of “single-sourcing” contracts for direct mail. Charities had previously believed these contracts were zero-rated for VAT.
However the Charity Tax Group and the Direct Marketing Association complained that HMRC had not published proper guidance on the changes, leaving charities unsure about how to comply with the new rules.
CTG said that HMRC had produced draft guidance on 16 March which was shared with specialists. But CTG believed there was “factual inaccuracy” in the guidance and that it had several problems.
That guidance was not published because HMRC was in “purdah” – a pre-election period in which it cannot comment on policy.
HMRC has now promised to extend the period before it applies the new rules to 31 July, and will publish a brief on 5 June, explaining changes to the rules, CTG said in a statement published today.
“If, for any reason, it is not possible to publish the VAT Notices by that date, HMRC has confirmed that it will extend further the end-date for the transitional period,” CTG said.
How the rules changes work
Charities spend £400m a year on direct mail, and at the moment many charities use “single-sourcing” contracts for direct mail, in which they pay one bill for both printing, sorting and delivery.
Print costs are zero-rated for VAT, and charities have previously claimed that the other services were “ancillary” to printing. They believe this meant they should pay no VAT on the whole production process.
However HMRC has said single-sourcing contracts should be standard-rated, meaning charities would have to pay VAT on the whole cost of production. It initially threatened to implement the change in October last year.
It said that standard rating for single sourcing was “existing policy” and not a change of position. Because of this it also threatened to charge this VAT retrospectively. However charities complained that these were new rules and had not previously been made clear despite repeated attempts to get clarification over the last few years.
After discussions with CTG and the DMA, HMRC agreed to postpone the implementation of the rules from 1 October 2014 until 1 April 2015. It also agreed a deal over retrospective charging, but CTG says it has reneged on this agreement.
CTG Comment
John Hemming, chair of the CTG, said: “We welcome HMRC’s decision to extend the transitional period until the end of July. This follows a recent meeting with HMRC, where we made it clear that it was unacceptable for charities to be expected to implement new rules without updated guidance having been published.
“We remain in discussions with HMRC about the exact scope of this concession and will continue to seek the fairest outcome for charities.”
