With effect from 2 April 2012, the Royal Mail will lose its VAT exemption. It will also likely soon have direct control of its pricing strategies for the first time. Amongst the postal services affected will be the Royal Mail’s bulk mail products. What will be the likely impact on the UK’s direct marketers? Mark Smith reports.
Topic: Tax
Who: Royal Mail
Where: UK
When: 2 April 2012
Law stated as at: 5 March 2012
What happened:
Royal Mail has recently announced that a number of its services, including all bulk mail services, will from 2 April 2012 be subject to Value Added Tax ("VAT").
Most businesses are able to claim back VAT payments. However, charities and businesses in the financial services sector, two big users of bulk mail services, cannot claim back VAT, which is currently levied at 20%. A spokesman for the Direct Marketing Association has claimed that charities, which send huge amounts of direct mail for fundraising purposes, could face extra costs of approximately £18m per annum due to the changes. Even those businesses that can claim VAT payments back could see a significant impact on their cash flow.
In a separate development, the communications regulator Ofcom, which last year took over the role of regulating the postal sector from previous regulator Postcomm, has proposed allow the Royal Mail freedom to set its own prices for the vast majority of its services by abolishing existing price controls. A consultation on the matter closed in January and a spokeswoman for Ofcom has indicated that a decision will be announced in the spring.
Why this matters:
The changes in the VAT position with regard to bulk mail services will have a noticeable impact on most companies that engage in direct marketing on a large scale. Charities and companies in the financial services sector will be particularly affected by the development.
With further bad news likely when Ofcom announces the results of its consultation with regard to allowing the Royal Mail freedom to set its own prices, it appears that 2012 could prove to be an annus horribilis for the direct marketing industry.
More information on the VAT changes is available here.
