Royal Mail's tax exemption threatened

EU says VAT breaks enjoyed by Royal Mail violate internal market rules

Written by Nicholas Neveling

Accountancy Age, 25 Jul 2007

The generous VAT breaks which save Royal Mail hundreds of millions of pounds could be scrapped following a warning EU tax commissioner Laszlo Kovacs.

The FT reports that Kovacs had claimed the VAT breaks enjoyed by Royal Mail and Deutsche Post in Germany contravened internal market rules.

Kovacs has stepped up legal action against the VAT breaks in an effort to flush out the imbalances. It is estimated that the UK government could raise £200m by imposing VAT on Royal Mail . Germany could raise €330m (£221m) if it scraps its exemptions.

Political sensitivities have delayed changes to VAT postal regimes. Operators such as Royal Mail enjoy VAT breaks because they guarantee delivery of mail to remote, uneconomic areas.

Kovacs, however, says that newer arrivals in the market are providing this services and still paying VAT.