Finance firms and charities have been advised they can avoid paying most of the new VAT charge on bulk mailings – estimated at tens of millions of pounds a year – by ditching Royal Mail for a private operator.
Ofcom’s decision to allow Royal Mail to set its own prices automatically made bulk mail services and products liable for VAT under HMRC rules. While most businesses can claim back VAT payments, charities and companies working in financial services – two of the biggest users of direct mail – cannot.
But Charity Tax Group adviser Peter Jenkins claims he has received confirmation that firms can avoid most of the charges by using downstream mailing services.
Royal Mail does not charge VAT if it provides only the ‘final mile’ delivery service, said Jenkins, even though it makes up almost all of the cost of bulk mail services. This is because this part of the journey – unlike the sorting and delivery – is not subject to competition.
Since April 2, charities and finance firms have had to pay the standard rate of VAT on bulk mail services from Royal Mail – a move estimated to cost charities alone £18m a year.
Although the business would have to pay VAT on sorting and delivery to the depot, Jenkins said, this service was very cheap compared to the ‘final mile’.
“This mechanism won’t help every organisation,” said Jenkins. “For this to work, a firm must be able to do a deal with the bulk mail provider, and that means they must have reasonably large guaranteed volumes.”
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