VAT And Postal Costs

After some months of speculation, the 2010 March Budget (and the emergency Budget in June 2010) finally confirmed that certain postal services, including individually negotiated services, ParcelForce services, 'door-to-door' unaddressed mail services, and mailroom services provided by the Royal Mail (including ParcelForce) will become subject to VAT at the standard rate from 31 January 2011 (the standard rate increases from 17.5% to 20% on 4 January 2011).

Those affected, including charities and others unable to recover all or part of their input tax, will need to consider whether they can make reclaims, and whether existing postal service contracts should now be renegotiated.

The change in VAT treatment of these postal services arose as a result of a European case involving TNT Post (UK) Limited (C-357/07). The European Court agreed with TNT that individually negotiated postal contracts with the Royal Mail and all contracts with ParcelForce should not be covered by the VAT exemption. For TNT, and other courier providers, this finally put their businesses on a level VAT-playing field with the Royal Mail.

This means that where previously these Royal Mail and ParcelForce contracts were considered to be exempt from VAT, the services should actually have been subject to the standard rate of VAT. As a result, what was previously regarded as a Royal Mail/ParcelForce VAT exempt service of £100 during a period when the VAT rate was 17.5%, could actually have been a supply of £85.11 and input VAT of £14.89.

It may be possible for Royal Mail/ ParcelForce customers to claim a refund of this inadvertently paid (or rather imputed) VAT, retrospectively for a period of up to four years.

Royal Mail/ParcelForce customers, including any charities, that have any individually negotiated contracts with Royal Mail/ParcelForce for mailings or courier services, should therefore consider whether a reclaim of VAT can be made in respect of such contracts. As charities generally cannot recover VAT in full, a claim may still be possible to the extent of the charity's ability to recover input VAT.

The future imposition of VAT on certain Royal Mail and ParcelForce mailings could result in a significant additional cost to most charities in the future. The postage costs of door-to-door mailings, donation envelopes and similarly delivered items are likely to become subject to irrecoverable VAT. Charities...