UK Royal Mail VAT status to face review

The Royal Mail’s exemption from VAT is to be examined as part of a consultation on the postal group’s “special privileges”, it was announced.

The industry’s regulator Postcomm said VAT exemption distorted competition in a significant part of the postal service and should be reviewed “as a priority”.

The Royal Mail’s exemption from parking restrictions and harbour charges and power to require ships or aircraft to carry mailbags will also form part of the consultation.

A spokesman for the Royal Mail said: “The last thing we would want to see would be customers facing price rises from VAT.”

Postcomm said that of all the privileges Royal Mail enjoyed, VAT exemption was the most contentious.

The exemptions dated from the time when the Royal Mail was the sole provider of postal services, but other companies were now in competition and were required to charge VAT at 17.5%.

Postcomm said that while this had little effect on businesses that reclaimed VAT, many major mailers, including providers of financial services and charities, were not able to reclaim the tax, which put competitors to Royal Mail at a disadvantage.

“Postcomm’s provisional view is that VAT exemption is not necessary for the provision of a universal postal service, distorts competition in a significant part of the UK postal services market and should be reviewed as a priority, with the aim of levelling the playing field.” the regulator said in a report.

Postcomm has no powers to make any changes and will have to make recommendations to the Government if it considers they are needed.