This April, postage prices are set to increase, and VAT is set to be added to almost all forms of postage. These two changes could have a huge impact on charities, warns Nick Pride.

Postage prices are set to increase in April. However, the exact amount is yet to be announced, and even then it will be subject to Ofcom approval. From the 2nd April, Royal Mail will also apply VAT (20 per cent) to almost all forms of postage, excluding first and second class stamps. These two changes, neither of which have been well publicised by Royal Mail, could provide a significant burden on charities.

Scope of impact

From the perspective of direct mail, it may seem that there will be little impact since most fundraisers are already working hard to ensure that their mailings are zero-rated*. However, if 'thanking and banking' is handled in-house or via a third party, then the postage element of this activity will most likely now have VAT added.

Furthermore, in-house activity such as gift aid mailings, and any administrative postage that results from reactivation, upgrade, or any telemarketing activity, will be affected. In fact, any posting carried out which mails on an account, will be subject to VAT.

Minimising the implications

Here are a few tips to minimize the impact on your charity:

1. Be sure to investigate the possibility of sending direct mail using a downstream access provider**; a service most creative agencies and print providers offer. The prices for this form of posting will increase in proportion with Royal Mail's headline increase, but there will still be savings made. So it is still possible to find worthwhile savings even for relatively small volumes, yet a number of fundraisers have not pursued this.
2. If zero-rated packs are not being used to handle the direct mail then there needs to be a reasons for doing so that is worth more than a 20 per cent increase in the cost of postage
3. Liaise with the marketing agency and the fulfilment partner about how to incorporate thanking and banking into the accounting for the mailing programme that generates the activity. The way this will work will vary for each organisation. However, if fulfillment costs can be accurately attributed to a zero-rated campaign, and invoicing consolidated to a single point, then fulfilment postage could also be zero-rated
4. Treat internal activity such as gift aid communications like a direct mail campaign. The project does not need to be outsourced in its entirety, but if it can be accounted for as a discrete project, constructing a zero-rated pack as the campaign vehicle, and outsourcing some elements of the execution, then it is possible to zero-rate the associated postage. This aspect will require some care, so enlist the help of trusted service providers when planning how to make this work
5. Examine and categorise all activity that results in a postage cost. Involve a trusted service provider to look at your options for zero-rating the more significant categories. Take a particularly careful look at telemarketing and digital channels, where it is most likely to incur VAT charges already.

Next steps

The next steps you need to take are simple but vital. Firstly, you must brief the board, trustees, fundraising and admin colleagues about an uncontrollable cost increase that will have a considerable impact on the organization. Secondly you should meet with key service providers for direct mail, fulfilment, administration and telemarketing - ideally together - to review the impact, and agree a plan on how to work together to minimise its effect. Only then will your charity be armed to take on whatever price increases Royal Mail throw at it.

Nick Pride is managing director of DMS. 

 

*TNT has produced a guide to what publishing and activity is zero-rated

*Downstream mailing is the process where mail is collected and distributed by a third party competitor, but handed over to Royal Mail for final processing onto local delivery offices