As it currently stands, charities don't have to pay VAT on their direct mailing. This was all set to change in October 2014, but it's now been announced that this is being postponed until April 2015.
As of April 2015, the printing and distribution of direct mailings will be subject to 20% VAT when single-sourced. This means that charities that use the same provider for printing and direct mail distribution will pay 20% VAT rates, but that these services are still zero-rated if two different companies are used. The change was originally announced in July 2014, which gave charities only three months to prepare for the action.
When the new VAT rules come into play, some of the largest charities may be hit by VAT of up to £700,000 if they continue as they currently are, according to the Charity Tax Group (CTG). The changes, however, will not come with retrospective billing. The chair of the Charity Tax Group has welcomed the delay to the new VAT rule introduction, stating that it 'is excellent news, because it gives time for charities to put in place revised arrangements'.
Now that they have fairer warning, charities should be able to plan ahead for their future direct mail campaigns. Accountants and direct mail fulfilment companies will work with charities to help them to get the most out of their direct mailing, whilst ensuring that they keep their VAT rates as low as legally possible. This might involve bulk mailing in different quantities, or changing a direct mail schedule, should 'single sourcing' still be a charity's preferred method. In a majority of cases, charities may want to use one company for design and printing and a second for direct mail distribution, to avoid the 20% charge.
Whilst there are no retrospective bills being sent out by HMRC, charities should not use their time until April 2015 to take unreasonable advantage of this fact. Charities are instructed by HMRC to continue 'as normal', and not to use the VAT-free period to run excessive direct mail campaigns or to try to manipulate the system.