The VAT tribunal’s recent decision could result in a reduction in costs of Direct Mail for charities, and furthermore, may even see some agencies and charities able to reclaim tax bills.
The ruling is in relation to the printing and despatch of insurance packs in the case of an insurer, which in 2014 were the focus of a change in VAT treatment by HM Revenue & Customs. Given the similarities between insurance and charity fundraising packs, this led to an increase in costs for charities and even resulted in some looking at sizeable one off charges.
A VAT Consultant at City & Cambridge who is also an advisor to the Charity Tax Group, Graham Elliott, is of the belief that the recent case of Paragon Customer Communications v HMRC at a VAT tribunal in February of this year demonstrates this decision was incorrect.
In fact, had charities not successfully campaigned for dispensation, the ruling could have been financially damaging to the charity sector, to the tune of millions of pounds. Unfortunately, a number of suppliers were still facing penalties of up to 7 figures and consequently, a large proportion of this was passed on their charity clients. Sadly and perhaps somewhat unsurprisingly, a number of suppliers were not able to meet the forced financial obligations and administration became the only option.
As a result of restructuring their agreements with suppliers, charities were able to ensure the long term impact of the VAT bills was thankfully less significant. The impact on the sector as a whole though was still substantial annually.
All of this may now be back under the microscope and reconsidered, as Mr Elliott states the synergies between the Paragon case and the charities situation are ‘striking’. Perhaps most significantly, he also states that “if the case is not appealed, or if the upper tribunal supports the first tier tribunals view, then it is likely that HMRC will have to change its guidance”
It will certainly be interesting to see how this pans out.
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