4 Eyes Ltd: VAT, Tax and Customs Consultants

Royal Mail VAT changes effective 2 April 2012

Royal Mail has announced that, with effect from 2 April 2012, the scope of the exemption for its postal services will narrow significantly, and will exclude "all bulk mail services". The change in VAT liability is attributed to changes in the regulation of postal services in the UK. The announcement includes a list of services which will become standard rated, along with a number of frequently asked questions (FAQs), which will be of interest to all potentially affected businesses.

The announcement, available on the Royal Mail website, will be of interest to all business users of Royal Mail services.

Royal Mail explains that, due to changes in the law and in the regulation of postal services in the UK, VAT exemption is only available for postal services which fall within Royal Mail's Universal Services Obligation (USO) or are subject to price control by the regulator.

Changes being made by the regulator mean that the exemption will be restricted, after 1 April 2012, to First and Second Class mail, Special Delivery, Next Day without additional enhancements, Recorded Signed For, International Airmail and Surface Mail, International Signed For and Standard Parcels, and this is provided that the recipient has not individually negotiated terms with Royal Mail, as individual negotiation is sufficient to exclude a supply from the USO.

Although a substantially rewritten guidance manual was published this week on the HMRC website, the changes announced by Royal Mail were not included.

Comment

All businesses which incur significant expenditure on Royal Mail services will be interested in this announcement. For those businesses which are unable to recover VAT in full, there will clearly be issues. However, it seems reasonable to assume that Royal Mail will obtain enhanced input VAT recovery and therefore it remains to be seen how these changes will affect its pricing going forward. In answer to a FAQ concerning pricing, Royal Mail says only that it is planning price increases in April 2012, but does not link these directly to the VAT changes.

It remains to be seen whether the changes announced by Royal Mail will have any consequences for the claims submitted by many users of Royal Mail services following the ECJ's judgment in TNT Post (UK) Limited (C-357/07). This announcement clearly brings many of the services with which those claims were concerned within the scope of VAT, the retrospective issue is whether the services were, in fact, always taxable. All businesses with retrospective claims should continue to maintain them pending the outcome of litigation which we understand is likely to commence this year.

If you would like to discuss the implication of these changes, please contact 4 Eyes Ltd.