Charities and Postal Charges

You may have heard recently that the VAT liability of bulk mailings will change with effect from 2 April this year as some of the changes to the postal system kick in. For the majority of users of such services (those sending out mass advertising campaigns for example) their taxable status will mean that they just recover the VAT on their VAT returns, a temporary cash flow blip therefore being the worst impact they’ll feel. But what about those top end users of such services for whom VAT recovery is an issue? Charities in particular will feel the impact.

As of 2 April 2012, all Royal Mail services covered by the Universal Service Obligation or that are under price control will continue to be considered as exempt from VAT. However, as of that date all bulk mailing services, regardless of the weight or quantity of the mailing, will become subject to VAT. When the rules surrounding postal prices were changed last year, a threshold of 1kg for packages shielded many of the charities mailings from being subject to VAT, as typically the mailer will be a letter, or a questionnaire, and even any ‘gift’ in the mailer was nowhere near the relevant limits.

Despite significant lobbying on this point it appears that now the legislative changes required have been agreed and in some cases implemented, it appears that the proposed VAT changes will become law with effect from 2 April 2011. Although this is obviously a blow to those taxpayers that cannot recover all of the VAT that they incur, all is not lost.

It appears that a possible short-term solution for most charities would be to use Downstream Access, or DSA, services. DSA providers have an agency agreement with Royal Mail that would allow customers to retain the VAT exemption, as DSA services are subject to price control. Under the agreement the DSA provider acts as your agent and secures from Royal Mail the so called ‘final mile’ delivery, i.e. the actual act of putting it through the letterbox. VAT is then only applicable on the ‘upstream’ element of the service, i.e. the collection and sorting by the DSA provider.

Why not give us a call on 0870 420 8971 to discuss how the upcoming changes may affect you or your clients?