Charities potentially face a large VAT bill on direct mailing activities

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Many charities that send out direct mail use "single sourcing" and pay a single supplier to produce printed promotional materials and send them out by post to the charity's supporters.

The production of printed materials is currently zero-rated for VAT and, although since 2012 charities have had to pay VAT on postage, suppliers under single sourcing contracts have not charged VAT on the postage element, believing it to be an "ancillary" cost to the principal zero-rated supply.

This practice has recently been called into question by a letter from HMRC sent to the Direct Marketing Association, which states that the whole service, production and postage, will be standard-rated for VAT. If this is correct then it will raise the direct mailing bill for charities by 20% and opens up the potential for backdated charges for the last two years. 

See article here.