Partner Article

Postman Pat and his black and white VAT

As the public postal services, Royal Mail is obliged under the provisions of the Postal Services Act (PSA), to provide a universal service.

Provided a privatised Royal Mail continues to be a designated universal service provider subject to OFCOM regulations, it can continue to provide first and second class mail delivery exempt from VAT, regardless of any ownership change.

But not all Royal Mail services benefit from VAT exemption. Although services that are still covered by its universal service obligation or are under price control by the regulators will continue to be VAT exempt, it’s worth noting that from April 2012, VAT has been added to ALL bulk mailing services as these were not controlled by the regulator, and are freely negotiated between Royal Mail and its customers.

The PSA does however implement minimum standards with which a VAT-exempt public postal service must comply, including specific days and times of weekday and weekend letter and parcel deliveries.

As a public postal service qualifying for VAT exemption, a privatised Royal Mail must also provide a service of conveying postal packets, a registered items service and an insured items service at affordable prices determined in accordance with a uniform public tariff.

If the privatised business can continue to meet these obligations, then we can rest assured that VAT won’t be added to the cost of a stamp.

The current universal regulations of the PSA are enshrined in legislation until 2021, but what happens after that? And what of the commercial challenges facing a privatised Royal Mail meantime?

Being subject to a uniform tariff and guaranteed delivery may have a detrimental impact on profits generated by other parts of the privatised business.

Should the pressures of competition result in guaranteed delivery and a uniform tariff therefore result in government subsidies or ‘tax breaks’ (including VAT exemption), Royal Mail could find itself subject to challenges of distortion of competition.

To counteract this, Royal Mail may have to relinquish its uniform public tariff and regulated price control and charge ‘commercial’ prices.

And if that happens, it should be borne in mind that, where a service which is currently exempt from VAT is no longer subject to a price control, it will then become liable to VAT at the standard rate.

This was posted in Bdaily's Members' News section by Baker Tilly .