HMRC is facing tough criticism on the way it has handled the introduction of VAT on direct mail for charities.
Back in October 2014, HMRC announced that the printing and distribution of direct mail for charities should be treated as standard-rated for VAT purposes. This meant that charities would see a 20% increase in their taxes.
After discussions with the Charity Tax Group and Direct Mail Association, HMRC agreed to push back the deadline of the tax implementation to 1st April 2015, giving charities six months to make new arrangements with their direct mail companies.
Back in December 2014
In December HMRC also confirmed that it would be printing and distributing guidance relating to the VAT change for charities to use. At the time, a spokesman said that HMRC accepted that there had been a lot of confusion about zero-rated printed matter and standard-rated direct mailing and would be writing to both the CTG and DMA about the changes and issuing new guidance to provide greater clarity.
However despite making these promises, the CTG said it had still not received any guidance from HMRC on 31st March and called for the VAT implementation date to be pushed back even further. Their argument being that charities are no better prepared than they were in October 2014, having not received any form of guidance or correspondence from HMRC.
Clarification is needed
The Charity Tax Group has said that HMRC still need to clarify some of the key issues, which have caused confusion about the new approach to VAT on direct mail for charities. For example, they said that HMRC has not clarified how bulk mailing will be treated or confirmed whether or not they will be billing charities retrospectively for backdated VAT payments.
HMRC has no intentions to change the date
Despite the complaints and calls for a later implementation date, HMRC has said they have no intention to change the date and that charities have known about proposed VAT changes since 2012. HMRC are therefore expecting all direct mail service users, including charities, to pay VAT correctly from now on.
They believe there has been no change to the policy, as direct mail has always been subject to VAT at the standard rate of 20%. HMRC has failed to confirm whether or not they will be publishing any guidance for the charities that have been left well and truly confused by the matter.
New update: Implementation date extended
Whilst HMRC had made it perfectly clear that they would not be extending the implementation date for the revised VAT changes for charities, it looks like they have changed their minds!
Two weeks ago, the Direct Mail Association met with the Charity Tax Group and HMRC to discuss the issues they were having. The DMA told HMRC that it was not acceptable to expect charities to implement the new VAT revisions relating to postage charges, when they hadn’t received any guidance on how to do so.
Since the meeting, HMRC has said that they won’t be publishing a statement directly but they have agreed to extend the implementation date of the new VAT charges to charities.
New implementation date: 1st August 2015
The updated VAT notices 700/24 and 701/10 will be published on 5th June 2015, along with a Revenue and Customs Brief explaining the VAT changes for charities. HMRC will expect all charities to be in compliance with the changes by 1st August 2015 (this is four months later than the date originally set).
What’s more, if HMRC does not publish the updated VAT Notices for charity by 5th June, they have confirmed that the implementation date will be pushed back even further.
No retrospective action for now
HMRC have agreed not to take retrospective action against companies that applied VAT incorrectly during the transitional period, which will end on 31 st July 2015. The Direct Mail Association is continuing to discuss this issue with HMRC and get further clarification on whether or not any retrospective action will be taken.
What this means for charities
This is great news for charities, as it gives them a little longer to implement the changes and ensuring their organisations are complying with the new VAT rules. It just goes to show what can be done when organisations team up and we are very pleased with how the DMA and CTG have worked together to achieve such a positive outcome.
We will be sure to provide any more updates that come from the DMA or CTG and will notify you if anything changes. Be sure to check-out other articles on our blog , we have a rich library of direct mail related articles. If you need to call the office, do ring us on 0800 612 1972 for a friendly conversation.
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