Fresh VAT blow for business

The possible introduction of VAT on postage stamps, revealed just a week before the Budget, may be introduced as the government looks to align the UK with the majority of mainland Europe, which already pays tax on postage.

According to Consignia, 80% of mail is business usage each year, so around £12m of the total £15m spent each day on postage is met by businesses.

If the current rate of VAT was applied to that amount, some £766m would be spent each year by UK plc.

Additionally, with the possibility remaining of Consignia being privatised, any long-term strategy for postage VAT would have to be arranged before then, rather than waiting for the development to unfold. 'Sooner or later the post office will be privatised, or the market will be deregulated.

'The government would have to start on VAT before writing up its prospectus, otherwise it may be accused of cheating if it looks to raise taxes in this area afterwards,' one Whitehall expert told Accountancy Age.

There is VAT on telephone calls and faxes, so it may be argued an introduction of the tax would simply be levelling the playing field for communications.

A Treasury spokesman said: 'This VAT is pretty low down on our list of priorities. But we do keep all VAT issues under review.

'We are in consultation with the Treasury regularly about that,' said a Consignia spokesman.

PwC tax partner, John Whiting added: 'The government may introduce a postage VAT rate of 5%, or maybe the full monty - 17.5%.'