Court ruling puts Royal Mail’s VAT exemption under threat

With postal strikes set to cause nationwide disruption and the postmen
showing no sign of backing down as Accountancy Age went to press,
surely, you would think, it couldn’t get any worse for Royal Mail.

You may well be wrong. In the midst of the uproar over the planned industrial
action, an HMRC brief emerged on its European Court of Justice battle with TNT
Post over VAT on delivery services ­ and it looks like the decision could impact
Royal Mail.

Historically, under EU law Royal Mail has been able to treat all its services
as being exempt from VAT on the grounds that they are the “public postal
service”. Other postal service providers in the UK have to charge VAT at the
standard rate.

TNT’s legal challenge was that Royal Mail’s VAT exemption was not in
accordance with EU law. The ECJ ruled that Royal Mail, as the operator providing
the “public postal service”, was the only postal service provider in the UK that
was eligible for the VAT exemption.

However, this exemption would not apply to supplies that had been
individually negotiated by businesses with Royal Mail, as it “distorts

This causes another headache for the national mail service on a couple of
fronts. Some businesses that have negotiated special contracts with Royal Mail
had been encouraged to lodge claims against the organisation.

These would claim that they assumed the fees charged by Royal Mail included
VAT, they paid it and are now entitled to have it back.

Furthermore, charging VAT on some Royal Mail services could increase costs
for an organisation that only made a profit (albeit at 0.86% of turnover) for
the first time in
20 years.

The HMRC brief, issued nearly six months after the ECJ decision, has stated
that “in the meantime, all postal services provided by Royal Mail remain exempt
from VAT”, but confirmed they were “currently in discussions with Royal Mail to
establish precisely which of their services will be affected [and] any changes
will be implemented from a future date”.

Royal Mail said it was still considering the ECJ ruling.

Marc Welby, VAT partner at BDO, said that in future “Royal Mail may no longer
be able to rely on the VAT exemption for their individually-negotiated,
special-rate services”. He added: “This could mean that the likes of TNT can

A prospect, surely, that beleaguered Royal Mail would not want to add to its
current problems.


Last week’s HMRC brief discourages businesses claiming “VAT” back from
Royal Mail for now, but it looks like Royal Mail will have to charge VAT on some
services in future, which will be a blow from a financial perspective.

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