Removal of postal price controls means extra VAT for DM

15/02/2012

Royal Mail has posted an announcement on its website stating that a range of their products and services, including all bulk products, will become liable to VAT from 2 April 2012. These proposed changes will leave companies exposed to further cost increases, the Direct Marketing Association (DMA) has warned.

This means that it’s now more important than ever that your DM campaigns work their socks off. They need to be written and designed with real creative flair, using all of the proven techniques to boost response. They need to be accurately targeted at the right people. And they need to integrate fully with your other marketing channels to produce a cohesive communications and engagement strategy.

Here’s why. From 2 April 2012, all of these products and services will become liable to VAT:

• Advertising Mail (70, 120, 700 and 1400)
• Automated Standard Tariff Large Letter
• Cleanmail
• Cleanmail Advance
• Cleanmail Plus
• Do not redirect
• First and Second Class Standard Tariff Account mail
• Mailsort (70, 120, 700 and 1400)
• Ministerial Pouch Services
• Packetpost
• Packetsort
• Packetsort Plus
• Packetsort Returns
• PO Box Services
• Presstream
• Redirect Diversion
• Response Services (including licence fees)
• Sustainable Mail
• Walksort

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 January 2012 would automatically make bulk mail services and products liable for VAT. Unless Ofcom revises its proposals after getting feedback 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% increase, coupled with a potential rise in product and service costs, would seriously damage the long-term prospects of direct mail.

Mike Lordan, chief of operations for the DMA, said that, “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.”

Alarmingly for many companies involved in DM creative and production, he concluded that, “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.”

What’s more, 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.

Find out more about our postal management services and how they can save your business money. Call David Thacker on 0115 950 0510.