Direct mail clients are being urged to join a legal fight against the taxman which, if successful, could result in them reclaiming millions of pounds in ‘hidden’ VAT charges, unwittingly paid out for Royal Mail services over the past four years.
Previously, postal services have been treated as exempt by Royal Mail under the VAT Act. But, after a case brought by rival TNT, it was found that the vast majority of Royal Mail services should, in fact, be chargeable.
Now, a case brought by legal firm DLA Piper – and due to be heard next year – aims to establish whether VAT has actually been added, although undeclared and therefore hidden, to the price of postal services.
The law firm has succeeded in its application to the First-Tier Tax Tribunal to bring what is called a “lead case” to recover VAT from Her Majesty’s Revenue & Customs.
If successful, all Royal Mail clients which join the case will be entitled to reclaim the input tax from HMRC for the last four years. It is estimated these payments could top £220m, although the lawyer running the case believes it is likely to be considerably more.
Businesses are now being urged to join the “lead case”. If a company or individual joins an appeal to a lead case (instead of simply standing their case over behind it) and it is successful, their case will also succeed. This will also trigger significant cost savings.
And if DLA Piper wins this Tribunal, it could open the floodgates so firms can reclaim the input tax for a far longer period of time, even back to the deregulation of the postal market in January 2006.
The Tribunal hearing will take place in early 2013, allowing any businesses that wish to join the lead case to lodge claims with HMRC over the next few months.
DLA Piper senior consultant Les Allen, who is lead litigator on the case, said he has already been contacted by a number of companies – including charities – keen to get onbaord.
He added: “The claims for input tax credit are likely to be well in excess of the £220m estimated by HMRC. Many businesses use Royal Mail’s services and they will be entitled to be credited for the VAT they have paid unknowingly because it is treated as having been embedded into the price paid.
“After lengthy negotiations at the Tribunal, we have a very clear question to be answered in the hearing next year that puts us in a strong position for winning this case.”
“I would urge all businesses that have already submitted a claim, and those that have not yet done so, to join the lead case to ensure they benefit from the successful outcome we are hopeful for.”
Last week, finance firms and charities were advised they could avoid paying most of the new VAT charge on bulk mailings – estimated at tens of millions of pounds a year – by ditching Royal Mail for a private operator.
Mailers told: go private to slash VAT