One UK charity faces a £700,000 retrospective VAT bill if the taxman decides to backdate charges on direct mail, a group which campaigns for better tax deals for charities has claimed.
The Charity Tax Group, which refuses to name the organisation concerned, has written to HM Revenue & Customs and Treasury demanding answers after the DMA warned of a “VAT timebomb” which could put many charities – and direct mail suppliers – out of business.
The issue dates back to January 2012, when Ofcom let Royal Mail set its own prices for commercial bulk mail, automatically making them liable for VAT. But to circumvent the changes, many charities combined the print and postal costs to make them VAT exempt.
Last month the DMA issued a warning that this practice, known as “single sourcing”, may not be seen as exempt from VAT when the long-awaited guidance finally emerges.
The Charity Tax Group’s missive claims the recent advice given to the DMA by HMRC “contradicts what charities regard as the accepted interpretation of the existing VAT rules”.
Charity Tax Group chair John Hemming wrote: “We do not believe it is satisfactory for VAT advice that deviates from the guidance and equates to new HMRC policy to be shared in this way, given the potential for panic and confusion.
“Clarity is urgently required in order to remove the uncertainty that charities are facing. Most importantly, we seek urgent assurances that no retrospective claims will be made against charities.”
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