20 percent tax on direct mail

Charities which have single sourcing contracts for production and postage of their direct mail will have to pay 20 percent VAT on those contracts from 1 October, HM Revenue & Customs has confirmed.

HMRC has also said that VAT could be retrospectively applied to contracts going back several years, although it said direct mail agencies, rather than charities, might have to pay this bill.

Direct mail specialists have previously said they were concerned that HMRC was adopting this position, and HMRC has now issued further statements which it said should clarify the position.

Previously, most direct mail providers have charged zero VAT on single sourcing contracts – where one provider offers printing, sorting and postage of direct mail. However HMRC sent a letter to the Direct Marketing Association in the summer saying it believed VAT was due on direct mail at the standard rate of 20 percent.

Single sourcing was introduced in 2012 after changes to VAT rules which meant charities would have to pay 20 percent VAT on postage, potentially costing the sector around £20million a year.