Postal rivals call for VAT on Royal Mail

Royal Mail’s rivals are considering making a formal complaint to the Competition Authority in Brussels which could lead to VAT being put on bulk business mail and parcel delivery. Representatives from Business Post, Dutch postal operator TPG and Hays DX held a meeting in Brussels earlier this month to argue that the current legislation, which exempts Royal Mail from charging VAT, gives it an unfair advantage. “The Competition Authority has shown interest in the case,” said Angus Russell, a solicitor who is advising TPG. “They were considerably sympathetic.” Under the current law, Royal Mail does not charge VAT on any of its deliveries, but rival couriers must do so. Much of the business mail market which has been opened up to competition does not claim back VAT, which means that Royal Mail’s prices become cheaper than their rivals. “A large number of eligible customers from the business mail market are in this position, including banks, insurance companies and charities,” Mr Russell said. The three rival couriers obtained a legal opinion from taxation expert Paul Lasok, QC. He concluded that the legislation that exempts Royal Mail from VAT, but not its rivals, is unlawful because it exempts services that are in competition with other operators from the tax, which those operators must pay. Royal Mail’s rivals have already approached Customs and the Treasury on the topic. “They told us they didn’t expect to get back to us terribly quickly,” said David Sibbick, who is in charge of regulatory affairs at Hays DX. “But we would really like a reply.” He added that he was not looking for a VAT change to the price of a stamp. “That market is not yet opened up,” he said. “Discounted business services is the area where the competition is, and where Royal Mail has the advantage.” However, when the Royal Mail’s monopoly on consumer letters is finally ended, which is expected to be within the next few years, it would follow that stamps would also be eligible for VAT. A spokesman for Royal Mail said yesterday that VAT on postage “would be the last thing we would want any of our customers to face. “It would not benefit our customers, and while many customers could recover VAT, a great many would not be able to. The hardest hit would be small businesses, charities – many of whom rely on mail for fundraising – and individual customers.” Postcomm, the market regulator, said that it is not in charge of whether Royal Mail must pay VAT or not. “It is a matter for the Treasury,” a spokesman said. However, he added: “Postcomm would want to see a level playing field for VAT in postal services, but we don’t want it to cost customers a serious amount of money.” The Royal Mail spokesman pointed to the situation in Sweden, where postal prices overall have risen substantially since VAT was removed. “It played a significant factor in Sweden’s equivalent first class service rising by more than 72pc over that last decade. In the same period Royal Mail prices have gone up by around 7pc,” the spokesman said. The UK postal market is in the process of being liberalised, as Royal Mail has traditionally had a monopoly over all letters costing less than a pound to post. Postcomm is in charge of opening up this market, starting with bulk business mail and ultimately opening up the entire area to competition. Business Post, Hays DX and TPG (which also owns parcel carrier TNT in the UK) have all received licences from the regulator to carry business mail.