VAT: postal services
The measure
The VAT exemption for postal services will be restricted to public postal services and incidental goods provided by the universal service provider (USP) of public postal services, currently Royal Mail. This change means that standard rated VAT will be applied to postal services and goods that Royal Mail is not under a statutory duty to provide, such as parcel post services which are provided to customers on terms that have been freely negotiated. Standard stamped and franked mail delivered by Royal Mail will remain exempt from VAT.
Who will be affected?
This measure will affect Royal Mail itself and those of its business customers who are unable to recover the VAT on these postal services because they are wholly or partly exempt from VAT, such as those in the financial, healthcare and charity sectors.
When?
The measure will affect supplies made on or after 31 January 2011.
This measure was introduced following a judgment in April 2009 from the European Court of Justice in TNT Post UK v HMRC which ruled that the VAT exemption for postal services does not apply to specially negotiated contracts for postal services provided by a USP. This ruling recognised that the USP should not be at a fiscal advantage as compared to providers of postal services that fall outside the duties of the USP.
