Institute of Fundraising responds to Postcomm on VAT
Howard Lake | 8 April 2004 | News
The Institute of Fundraising has warned that many charities would have to reduce their direct mail fundraising activities if the Royal Mail was required to charge VAT on its postal services.
The proposal to remove the Royal Mail’s exemption from VAT is contained in independent regulator Postcomm’s current consultation document ‘A Review of Royal Mail’s Special Privileges’. The Institute is concerned that the introduction of VAT would add to UK charities’ burden of unrecoverable VAT and add to charities’ expenditure on fundraising via direct mail.
The Institute estimates that the charity sector spends at least £100 million a year on postal services. This does not include special services such as rapid delivery or purchases from local post offices by small charities. Having consulted on VAT issues in 2001 and again this year, the Institute reports that its members, whether large or small charities, would have to “reduce their postal activities due to increased costs or see an increase in costs that would draw money away from other activities.”
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Spending on postage accounts for between 1 and 8% of voluntary income, according to the Institute, with the smallest charities generally spending the largest proportion of voluntary income on postage costs.
The Institute is certain that increased postage prices would directly affect direct mail, a key fundraising activity for recruiting new supporters and retaining existing supporters. For example, in 2002/2003, direct mail accounted for 4.7% of new voluntary income. Any reduction in direct mail activities due to increased costs would therefore result in a drop in the number of new donors recruited.
In addition, service delivery would also be affected, as voluntary organisations use the postal service to inform both donors and beneficiaries of services. Membership bodies too would face increased costs in communicating with their members.
One respondent told the Institute: “We estimate that our postage costs would increase by £250 000. In other words, we would have £250 000 less to invest in fundraising and providing information and support.” Another charity stated that that they were sure that “donors wouldn’t add an extra 17.5% to donations to compensate us!”
The Institute’s response therefore concluded: “We would urge Postcomm and the Government to ensure that any changes to Royal Mail’s exemption from VAT are only made after full consultation with the voluntary and community sector and that steps are taken to ensure that VCOs do not suffer increased costs due to any changes.”
About Howard Lake
Howard Lake is consultant editor of UK Fundraising. He founded the site in 1994 and successfully sold it in 2022. As director of Giving X Ltd he is exploring growing giving on a massive scale.
He is the founder of Fundraising Camp and co-founder of GoodJobs.