Postage costs to rise from next year

Following a recent ruling of the European Court of Justice, HMRC has now revised its policy in respect of which services Royal Mail can exempt from VAT. 

Baker Tilly analysis

HMRC’s revised policy means that, generally speaking, only public postal services (made under a licence duty) supplied by Royal Mail can be exempt from VAT. Other postal services provided by Royal Mail will be subject to the standard rate of VAT from 31 January 2011. Individuals will be largely unaffected, as will fully-taxable businesses as these can recover any VAT they are charged in full. However, suppliers of financial services and any other businesses making exempt supplies will not be able to recover any extra VAT charged, with the effect that postal costs could be considerably more expensive for these sectors.

In detail

VAT at 17.5% will be charged on all postal services that are not subject to any price and regulatory control or are individually negotiated. This includes business collections, door-to-door (unaddressed mail) and Parcelforce services. However, volume discounts and those services made available on the same terms and conditions to everybody are unaffected and will remain exempt. Only those services that have been genuinely individually negotiated will become subject to VAT.