By Martin Rides
As we approach the end of July, the third sector will doubtless be praying for an end to what is commonly termed national media ‘silly season’, when outlets (notably the Daily Mail) declares open season on direct marketing. This year’s pot shots, primarily aimed at charities (aggressive telemarketing and Olive’s Law), rival what the Direct Marketing Association (DMA) coined the ‘Summer of Discontent’ experienced back in 2006 when the Daily Mail crusaded against addressed and unaddressed advertising mail. However, the charity sector isn’t out of the woods yet, for another hunter is waiting in the wings with its gun loaded and has its sights trained on 1st August to make its first shots. This hunter is the tax man.
Since 2013 charities and direct mail providers have been waiting with bated breath as to how HMRC was going to approach the VAT treatment of charitable direct mail, which is currently zero-rated. The new approach was supposed to come into force in October 2014, but was deferred until April 1st 2015 (April Fool’s Day, an irony not lost on many). However, once again the HMRC was unforthcoming with new guidance notices and the date was once again deferred until 1st August. In June, after significant pressure from the DMA and Charity Tax Group (CTG), the tax man finally issued the promised guidance documents, meaning we are all now (allegedly) clear as to the charges that apply.
1. Charities that use a single supplier to print and deliver a direct mail campaign will now have to pay standard rate tax on both services. Before the changes, the delivery element - which should have been standard rated - was subsumed into the zero rated supply of printed matter
2. When any of the following services are supplied separately they comprise multiple suppliers and each component is taxed according to its own VAT liability (typically standard rated)
3. The following services remain zero-rated so long as no other services (e.g. listed above) are supplied with them:
Mail producers will still be able to mitigate the VAT on postage after 1 August for charities that are unable to reclaim VAT through agency agreements and disbursement. And the above zero-rated services, such as data suppression, create a unique opportunity for mailing houses to become trusted advisors to their charity clients, enabling them to save thousands of pounds on their direct mail campaigns.
One of the issues still outstanding is the application of retrospective charges. This could cost the sector hundreds of thousands of pounds in back charges for direct mail campaigns that have been sent out since April 2012. However, CTG is confident that HMRC will exercise a clean slate and the treatment will apply from 1st August 2015.
Without a doubt, these changes will add an additional cost to charitable direct mail campaigns and the third sector will need to be as savvy as possible to mitigate VAT charges wherever possible. Seemingly small decisions, such as the choice of mail producer, will now have more significance in terms of saving valuable money. Moreover, with the incoming changes to the Charity Bill and the tarnished reputation of charity telemarketing, direct mail; when executed responsibly, is the most effective, personal and fair way of communicating with donors and potential supporters.