Postal costs to rise after tax ruling

17 November 2009

17 November 2009 | Allie Anderson

Royal Mail is expected to lose business after a court decided that it must start charging VAT to private sector customers.

Under European Union law, publicly owned postal service suppliers are exempt from charging tax for their services. As a result, Royal Mail is currently the only post provider in the UK not required to levy VAT.

But TNT Post, a competitor, challenged the law earlier this year and last month it was ruled that the exemption should not apply to Royal Mail's business services.

The changes are likely to come into force next year when the tax rate is pushed back up to 17.5 per cent from the 15 per cent discretionary rate introduced by the Treasury a year ago. It means Royal Mail's business customers who can't claim back VAT will have to pay 17.5 per cent more for their postal service.

Jonathan DeCarteret, founder of independent delivery service broker Post-Switch, told SM: "The VAT issue has been a problem for a long time. If this goes through we would expect the major bastion of loyal mailers to move away from Royal Mail. It removes Royal Mail's last major advantage over its rivals."

He added that it would be especially pertinent to firms in the financial services sector, which are unable to claim back VAT. "The largest financial organisations have already moved away from Royal Mail, but for those who haven't, they face a choice. They will either have to reduce their postage budget by 17.5 per cent, or they would look to absorb the extra by switching their accounts to other competitors."

A Royal Mail spokesman was unable to comment on the ruling because the organisation is in discussions with HM Revenue and Customs over how it should be applied.

A TNT Post spokeswoman said: "We are reviewing the impact this proposal will have on business mailings in the UK. Until we have a level playing field British customers will not see the full benefits of choice and innovation in postal services."

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