Postcomm welcomes progress on VAT for postal services

Postcomm – the independent regulator for postal services in the UK – has welcomed the announcement earlier this week of a new type of access arrangement, designed to allow VAT-exempt organisations, including financial institutions and some charities, to take better advantage of the choices available in the newly-competitive mail market.

Under the new arrangements, mail operators offering access will no longer be required to charge VAT on the whole cost of their access schemes. Instead, VAT is only required to be charged on the ‘upstream’ element of these arrangements – that is, the collection and sorting services offered by Royal Mail’s competitors.

The ‘downstream’ element – delivery – is provided on competitors’ behalf by Royal Mail, which is itself exempt from charging VAT on the services it supplies to customers.

Until now, VAT was required to be charged on the full cost of access arrangements with licensed operators. Non-exempt organisations have been able to offset that cost against their own VAT payments. But VAT-exempt organisations have not, making access arrangements – and the services offered by Royal Mail’s competitors – more expensive, in practice, for them.

Although Postcomm has welcomed today’s announcement, it remains concerned that there is not a ‘level playing field’ for licensed postal operators: Royal Mail is exempt from charging VAT, while other operators are required to charge the full 17.5%, making it harder for them to compete on cost for the business of VAT-exempt mailers. This is a significant barrier to postal market entry for new operators, particularly end-to-end operators, who make their own deliveries, and whose VAT liability remains unchanged.

Postcomm’s preferred solution would be a reduced, uniform rate of VAT, to be applied to all postal operators, including Royal Mail. For example, a 5% rate applied across the board would create a level playing field without resulting in significant price rises for customers.

However, this is not an issue Postcomm can itself resolve, but a policy matter for HM Treasury. The UK government must operate within the common VAT framework set out by the European Commission, which has recently expressed its concern over Royal Mail’s exemption from VAT. A proposed amendment to the current VAT Directive would allow for a uniform, lower rate of VAT to apply to all licensed postal operators – something Postcomm would welcome.

Notes for editors

Access agreements are contractual agreements between Royal Mail and other postal operators or large mail users that allow them to use Royal Mail’s facilities to carry post on the ‘downstream’ part of its journey (delivery), for a set price per item, typically around 13p.

Some of the UK’s largest bulk mailers – including banks and other financial institutions, as well as some charities – are VAT-exempt.

Today’s announcement comes as a result of discussions between HM Revenue & Customs, Royal Mail and UK Mail.

Further access schemes arranged on this basis would need to be individually agreed between HM Revenue & Customs, Royal Mail and the licensed operator concerned.