Royal Mail has announced that with effect from 2 April 2012, its retail services which fall outside the universal service (USO) will be subject to VAT at 20%. 

Frequently Asked Questions: 

Q.What will happen to standard Downstream Access Services for letters and large letters? 

We await confirmation but expect that standard Downstream Access for letters and large letters (with handover to the IMC on the morning after collection) will remain VAT exempt. 

Q.Will packet downstream access services become taxable? 

HMRC will not confirm the final position until Ofcom has made its final decision on the new postal regulations, at the end of in March.  If Ofcom follows its current proposal and does not oblige Royal Mail to offer a downstream packets service and does not regulate headroom on packets, HMRC have confirmed that packet access would become subject to VAT at 20%. 

Q.What will happen to next day Premium Access? 

HMRC will not confirm the final position until Ofcom has made its final decision on the new postal regulations, at the end of March.  Royal Mail offers a Premium access service with handover at the IMC around midnight on the day of collection.  If Ofcom follows its current proposal and does not oblige Royal Mail to offer this next day service and does not regulate headroom on this service, HMCR have confirmed that Premium access for all formats would become subject to VAT at 20%. 

Q. What happens to agency contracts? 

This depends on the underlying VAT treatment of the Royal Mail access service.  As stated above, there is not expected to be any change for agency customers using standard downstream access services.  They Royal Mail charge, we expect, will remain VAT exempt and the Royal Mail charges will either be billed direct to the agency customer or billed, as a disbursement and therefore outside the scope of VAT, by TNT Post. For agency contracts using an access services which is taxable (as stated above, possibly for Premium Access for all formats and Standard Packets Access), if the access service itself becomes subject to VAT, the direct billing or disbursement treatment will have VAT added. 

Q. Are all services paid for using a franking machine / meter VAT exempt? 

A franking machine is only a method for paying for the service.  It is the underlying service which decides the VAT treatment.  If it is used to pay for a single item, first or second class item or other USO service then the service will be VAT exempt.  If it is used for any other service which is not one of the USO services listed below it will be subject to VAT.  To be able to differentiate where the meter is used to pay for both taxable and VAT exempt services, a customer will need to have a “smart” meter. 

UK Services

• First and Second Class (Stamped, Franked)
• Special Delivery™ Next Day (Stamped and Franked)
• Standard parcels
• Recorded Signed For™ (if purchased with an exempt service)
• Keepsafe™

• International Airmail
• International Surface Mail
• All HM Forces Mail (BFPO)

As with franking machines, PPI is a payment method only.  The tax treatment depends on the underlying service. 

With effect from 2 April 2012, Royal Mail proposes to offer a single item service which can be paid for using PPI so there will also be PPI services for single items which are VAT exempt. http://www.royalmailgroup.com/sites/default/files/Single%20Piece%20on%20Account.pdf

Disclaimer: TNT Post is not authorised to give tax advice. The above note is purely a summary of our own understanding and must not be relied upon. If definitive advice is required, you need to take professional advice from a qualified tax adviser.