Proposed changes to remove postal price controls could ramp up cost of advertising mail
Proposed changes to postal regulations to remove price controls on Royal Mail’s commercial bulk mailing services could damage the long-term prospects of advertising mail, the Direct Marketing Association (DMA) has warned.
Under current HMRC guidelines, bulk mail is exempt from VAT charges, but the removal of price controls, which was proposed by Ofcom in a public consultation that closed earlier this month, would make bulk mail services and products liable for VAT under HMRC rules.
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. Mike Lordan, chief of operations for the DMA, has said that a mandatory 20% increase, coupled with a likely rise in product and service costs, would damage the long-term prospects of advertising mail.
He 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, with many indicating they would withdraw from using mail if Royal Mail takes advantage of its new commercial freedom to impose another round of large price increases.