Removal of postal price controls reveals additional VAT trap for advertising mail
|17 Jan 2012 3:27 GMT||Back|
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Proposed changes to postal regulations to remove price controls on Royal Mail’s commercial bulk mailing services will lead to its exemption from VAT liabilities leaving companies exposed to further cost increases, the Direct Marketing Association (DMA) has warned.
Under current HMRC guidelines, bulk mail is exempt from VAT charges. The removal of price controls, which was proposed by new postal regulator Ofcom in a public consultation that closed earlier this month, would automatically make bulk mail services and products liable for VAT under HMRC rules. Unless Ofcom revises its proposals as a result of responses to its consultation, then restrictions on price controls will be lifted on 2 April 2012.
While most businesses can claim back VAT payments, charities and companies working in the financial services – two of the biggest users of advertising mail – cannot. A mandatory 20 per cent increase, coupled with a potential rise in product and service costs, would seriously damage the long-term prospects of advertising mail, Mike Lordan, chief of operations for the DMA, has stated. Commenting on the development, Lordan said:
“The prospect of VAT charges is a serious financial issue for users of bulk mail, but the industry is being left in the dark by HMRC and Royal Mail who have yet to clarify the details about the changes.
“We need to know if the possibility of adding VAT is based on current guidelines or some as-yet unannounced plans, and if VAT will be collected from 2 April or if there will be a grace period. Most companies can claim back VAT, but this additional cost needs to be factored into cashflow planning. Financial services businesses and charities need to factor this extra cost into their budgets.
“These additional costs could well prove to be the final straw for many companies that will abandon the medium in favour of more competitively-priced marketing channels.”
In December 2011, the DMA convened a high-level summit of business mail users, postal service providers, senior marketers and industry trade associations, to address industry concerns about the recent Ofcom public consultation on a raft of controversial changes to postal regulations to boost Royal Mail’s profitability. The DMA submitted a formal response to the consultation outlining its concerns with the proposals on behalf of its members.
Companies that use mail for sending customer bills or statements were squeezed by a 15%-20% price increase in 2011 on the cost of transactional bulk mail services. Many have indicated they plan to withdraw from using mail if Royal Mail takes advantage of its new commercial freedom to impose another round of large price increases.
Commercial bulk mail users represent Royal Mail’s biggest customers and underwrite the cost of an affordable Universal Service.
Tristan Garrick, DMA PR manager
Tel. 020 7291 3315