How to avoid VAT charges on your postage
The DMA issued a press release last week which I wanted to draw people’s attention to: "DMA warns industry of sitting on ad mail VAT time bomb" (1). HMRC has clarified to the DMA that postage costs, as part of advertising mail, are subject to VAT charges and that including postage (or anything else other than print) as part of a zero-rated single-source supply does not exempt it from VAT.
This is of particular relevance to organisations that cannot fully or partly reclaim VAT, such as financial services brands, charities, educational institutions and government.
The changes could mean that as a charity, your fundraising direct mail could now cost you more money. Paying VAT would increase the cost of a second post mail piece by 20% meaning that charities would have to think carefully about their mailing campaigns. However, there is a solution for charities which could save you money, which is to enter into an Agency agreement with a third party.
What is an Agency Agreement?
This is a contractual arrangement between Royal Mail and an organisation who is the ‘licence holder’ who then works with charities or other institutions. Because the licence holder has a direct relationship with Royal Mail they can treat the Royal Mail wholesale element of any mailing as a disbursement and pass this cost directly onto our customers without any VAT attributable. This is an HMRC approved process treating postage as a disbursement which many charities have benefitted from over the years.
If you are a charity who sends out direct mail over the year, it may well be worth you looking into an Agency Agreement to see if it could save you money. ONEPOST are able to offer a solution for those organisations who are unable to reclaim VAT.
David Steadman, Business Development Manager, ONEPOST