HMRC rules for bulk mail

Charities engaged in direct mail campaigns could be charged extra for postage following guidance from Her Majesty’s Revenue and Customs (HMRC) on how it will implement VAT rules for bulk mail.

A letter from HMRC to the Direct Marketing Association (DMA) has stated that advertising mail suppliers that combine postage costs with production costs as a way to cut out VAT liabilities for charities can no longer use this practice. This means that charities could face paying an average of 20p more for every letter they send, and could incur back-dated VAT charges or penalties for avoiding the charges.

Bulk mail, used by many charities when sending direct mail for fundraising purposes, was exempt from VAT until April 2012, when Royal Mail removed the channel from its universal service list. The DMA warned at the time that the move would lead to charities being charged an extra £17.9million when sending out direct mail.

Since 2012, the DMA has been pressing HMRC to provide guidance on how the rules will be applied.

While this guidance was being sought, mailing houses have been interpreting the rules in a way that saves them money and makes them more competitive with charities. The practice many have used, known as single sourcing, enables them to combine printing and postage costs and thereby sidestep VAT charges.

The DMA plans to lobby the government to ensure that companies engaged in single sourcing will not be charged for the two years in which they have not paid VAT, and that they are not penalised for using this approach. If they are penalised, some could end up passing the cost onto their charity clients.