HMRC Clarifies Royal Mail VAT Situation

by Jason Gorringe, Tax-News.com, London

20 October 2009

As the UK's Royal Mail faces the near certainty of strike action later this week, HM Revenue and Customs (HMRC) has clarified the situation with regard to the carrier's VAT exempt status on the provision of certain of its services.

EU legislation allows a mandatory exemption from VAT for supplies of postal services made by the "public postal services."

HMRC explained: "In the UK, the application of this provision is limited to Royal Mail and covers all of Royal Mail's postal services. All other postal operators – both before and after full deregulation of the postal sector in the UK on January 1, 2006 – are required to charge VAT at the standard rate on their services."

"Following a legal challenge to the scope of the exemption as applied in the UK, the European Court of Justice in the case of TNT Post UK Ltd has confirmed that Royal Mail, as the operator providing the public postal service, is the only postal body in the UK eligible to exempt postal services from VAT. However, it has also ruled that exemption applies to the public postal services (that is, Royal Mail) acting as such and does not apply to supplies made by Royal Mail for which the terms have been individually negotiated."

"As a result, some postal services as supplied by Royal Mail – those which are individually negotiated or not subject to any price and regulatory control – which have been treated as exempt will become liable to VAT."

HMRC stated that it is "currently in discussions" with Royal Mail to establish precisely which of their services will be affected, and went on to reveal that further guidance will be issued once these discussions are complete.

"Any changes will be implemented from a future date and, in the meantime, all postal services provided by Royal Mail remain exempt from VAT," HMRC concluded

Competing delivery services are likely to benefit significantly from the forthcoming strike action, but the vast majority rely on the public service to make the "final mile" deliveries, and they are reluctant to roll out their own services in this area whilst Royal Mail retains its VAT-privileged status.

Speaking to the Financial Times on the matter this week, TNT chief executive Nick Wells observed: "It's a shame that there are barriers in the market that have prevented us from offering a real alternative. The past couple of weeks have been our busiest ever."

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