Industry demands to get HMRC to give clear advice on whether charities can claim back the VAT on direct mail costs are falling on deaf ears, despite tentative assurances “erroneous” claims will not result in a fine.
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.
In August,the DMA issued a fresh warning that this practice, known as “single sourcing”, may not be seen as exempt from VAT when the long-awaited guidance finally emerges, and sought assurances from HMRC.
The DMA has two objectives. The first is to ensure that no member is subject to any retrospective penalties or fines from HMRC simply as a result of “misinterpreting” (in HMRC’s view) the confusing published guidance. The second is to get a clear agreement of the VAT liabilities when providing direct mail print and postage so all suppliers can compete on an equal footing.
Writing on the DMA website, director of external affairs Mike Lordan said he was “increasingly confident” that it was “highly unlikely that anyone will be penalised retrospectively for misinterpreting the HMRC guidance”, although HMRC has the final say over whether it thinks claims are deliberate or erroneous.
And Lordan concedes that the second objective – clear guidance – is proving slightly more difficult to achieve. HMRC does confirm that some other services , such as artwork and design, can be exempt from VAT but is sticking to its guns when it comes to postage.
With postage often making up the bulk of the costs, this could prove very expensive for charities.
Lordan added: “I’m aware that some members strongly believe that this interpretation is incorrect and the DMA will be meeting with legal and taxation experts in the next few weeks to determine the next steps.”
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