The Charity Tax Group (CTG) has demanded clarity over the HMRC’s attitude on VAT treatment of direct mail relating to charities, indicating it believes that HMRC’s position is in contradiction of existing guidance and practice and would leave massive VAT charges.
The CTG said that the implication would be grave for charities that have engaged in single sourcing since 2012 – stating that one large charity in particular could be hit with a VAT charge as high as £700,000.
The chairman of the group, John Hemming – who is also head of tax at the Welcome Trust – says that while advice was requested from HMRC when VAT was first introduced on Royal Mail bulk mailings, it is only available now.
“If this was known to be HMRC’s position, charities could have arranged their affairs to mitigate the increased VAT cost. Given these circumstances, the possibility of a retrospective VAT charge becomes even more unreasonable and it is surely not the intention of the government to penalise the sector in such a way – a point that I may need to raise at my meeting with the Minister responsible for charity taxation, Priti Patel MP, on16 September,” Mr Hemming has told HMRC in a letter.
Mr Hemming has taken up the matter after it was first raised by the Direct Marketing Association (DMA) last month, over concerns that companies that specialise in supplying bulk deliveries of advertising mail to charities and other businesses could face a VAT time bomb as a result of HMRC’s delays in issuing guidance on how the VAT rules operate.
New rules now mean that postage on direct mail can no longer be considered zero-rated, affecting charities due to the VAT status of Royal Mail’s mailsort services.
Companies are able to print direct marketing materials for charities which are zero-rated for VAT, but these cannot be distributed unless they are passed to the mailsort service, which is potentially VAT-rated.
The CTG has proposed a meeting with HMRC to air the issue more thoroughly.
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