Royal Mail forced to charge VAT on business client contracts

As a result of a challenge by a competitor to Royal Mail – TNT Post – in the European Court of Justice, Royal Mail will now have to charge VAT on the majority of business it tenders for. The ruling is likely to make it more difficult for Royal Mail to compete against rivals such as TNT, UK Mail and DHL.

However, the majority of direct mail customers will not face a price increase despite Royal Mail being told that it will soon have to start charging VAT on some of its services.

The mail operator was informed of the decision by HM Revenue & Customs (HMRC) following the ruling which cited that such benefits such as its exemption to VAT should not be applied when competing for commercial contracts: Mailsort 1, 2 and 3 that are used for the Royal Mail’s direct mail offering are not subject to the HMRC ruling, as they are price controlled.