On the 10th June 2015, HM Revenue & Customs (HMRC) updated their guidance on VAT on direct mail to provide further clarity for charities. In 2014, The Charity Tax Group (CTG) and Direct Marketing Association (DMA) appealed to HMRC to provide clarity on the VAT of direct mail as the previous guidance was too ambiguous, especially with regards to charities. HMRC responded in December 2014 and accepted “that guidance on the treatment of direct mail could be improved”. The new guidance was set to be published by 31st March 2015; however, CTA and the DMA insisted that HMRC delay to give the government more time to fully consider the new regulations.
The Guidance Updates
HMRC made changes to both the VAT Notice 701/10 and VAT Notice 700/24. Essentially, HMRC has changed its stance on tax and many contracts that charities believed were zero-rated for VAT purposes, are in fact ‘standard rated’. For example, previously, many charities believed that ‘single sourcing’ contracts, which included a print element, were zero rated. However, under the new guidance these are classified as ‘standard-rated’ and therefore will attract VAT.
What Does This Mean for Charities?
The good news is that all charities now have a set standard that they can follow. The bad news is that 20% VAT now applies to ‘single sourcing’ contracts, which means up to £400m of charity direct mail is now subject to additional VAT charges. The new guidelines will be fully enforced on the 1st August 2015; HMRC have given a transitional period where 20% VAT will not be applied until this date, although, suppliers and charities should begin to comply as soon as possible.
If you have any questions concerning these new rules or would like further information, please contact firstname.lastname@example.org