Many charities and not-for-profit organisations will be affected
by the introduction of VAT on a number of Royal Mail postal
services from 2 April this year.
Some postal services, including stamped or franked first and
second class post, will remain exempt from VAT as they are part of
the Royal Mail's universal service obligation. Other postal
services subject to regulatory price control will also remain VAT
However, VAT will be charged from 2 April 2012 on many other
postal services, including business collections, Special
Delivery" Next Day (on account only) and door to door. A full
list of the postal services that are changing their VAT status on 2
April, can be found on the Royal Mail website at the following
The addition of 20% VAT on postal services will be a significant
cost increase for organisations that cannot reclaim all of their
VAT. For those that are partly exempt and able to reclaim a
proportion of their VAT costs, it may be an opportune time to
review their VAT recovery calculations to try to mitigate the
irrecoverable VAT costs.
Charities and other organisations that are not VAT registered,
should ensure that they are taking advantage of other measures to
minimise the VAT cost of postal campaigns, such as the zero-rating
of campaign packs where individual elements might otherwise attract
Whether or not charities are normally able to reclaim some VAT
costs, the changes in April might still involve a bottom-line cost.
If you use a franking machine, Royal Mail has said that the
services on which VAT will be charged from April can only be
purchased through 'smart' franking machines, which will
also produce VAT invoices; the VATable services cannot be purchased
through older franking machines.
VAT cost sharing exemption
In the autumn 2011 edition of the charities bulletin,
we reported that HMRC was in consultation about the implementation
of a cost sharing VAT exemption. In the Chancellor's Autumn
Statement on 29 November it was announced that legislation will be
introduced to implement the cost sharing exemption in 2012.
This exemption will allow groups of eligible organisations,
including charities, academy schools, universities, higher
education colleges and housing associations, to provide services to
each other without generating an irrecoverable VAT cost, provided
the services are directly necessary for the consortium member to
carry out its exempt and/or non-business activities.
Newly formed cost sharing consortia can apply the VAT exemption
from the date when the 2012 Finance Bill receives Royal Assent.
HMRC has said that it will publish comprehensive guidance on the
conditions and eligibility to use the cost sharing exemption in
advance of its legal effect. HMRC has acknowledged that it cannot
prevent cost sharing arrangements from being formed prior to the
new legislation coming into force because the exemption already
exists in EU VAT law. However, HMRC does warn that incorrect
implementation of the exemption before it becomes UK law could
result in it taking action to recover any VAT that should have been
charged, including the charging of penalties.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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