Philanthropy Impact

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HMRC clamps down on VAT relief for charities

HMRC clamps down on VAT relief for charities

News (UK)

Philanthropy Impact members Smith & Williamson have issued the following briefing and comment on impending changes to charities' VAT relief:

Recent HMRC statistics place the cost of VAT relief obtained by charities at £300 million annually but the amount of relief charities can obtain is coming under threat,” says John Voyez, VAT partner at Smith & Williamson, the accountancy and investment management group.

Tax relief associated with direct marketing and mailing has long been viewed by HMRC as an area which has become wider than originally intended, and from 1 August 2015 changes will be implemented to restrict the extent of zero rating for VAT purposes.  Many charities may be unaware of the implications of the changes and the additional VAT cost they face.

It has become standard practice for the print and distribution of mail-packs by specialist companies on behalf of charities (such as pamphlets or gift donation envelopes) to be treated as a single zero tax rated supply of goods.

However, HMRC has taken the view that the VAT liability of most of the component parts of the direct mailing supply should be treated as standard rated.  A temporary reprieve was agreed after lengthy consultation with the Charities Tax Reform Group but new arrangements will apply from 1 August 2015 onwards.

With only a few weeks to go, before a single contract for direct marketing and mailing supplies is treated as a standard tax rated supply, many charities and direct mail providers are having to consider the consequences of this VAT change.

Despite discussions with H M Revenue & Customs having been ongoing for over a year, many charities are unlikely to have considered the potential financial impact this change may have.  The costs to the charity sector could run into the millions.  Charities need to be talking with their direct mailing providers to analyse their position and ascertain what steps can be taken to ensure a successful conclusion.

  • Government, legal and tax issues
  • UK