TNT takes VAT fight back to court

TNT Post is stepping up its fight to get Royal Mail’s VAT exemption overturned by taking the battle back to the High Court in a move which could put the kibosh on Government plans to get the most value – up to £3bn – from the sale.
TNT Post has been contesting the issue for years, claiming the exemption gives Royal Mail an unfair advantage – and a 20% price reduction – on its competitors.
It has already lost the case once, in 2009, but it is now seeking a judicial review to get the exemption removed from all Royal Mail services which do not form part of the Universal Service. This would mean direct mail would no longer get the tax break.
TNT UK chief executive Nick Wells said: “The Government hasn’t expressed or HMRC has not expressed any desire or interest to change their position, which has left us with no option but to challenge this through the courts.
“From a personal point of view, the privatisation is positive news for the industry and access to external capital is good news for Royal Mail.
“But having a privatised Royal Mail with a 20% VAT advantage is simply not fair. We expect a favourable decision to come out of this process and expect that to be towards the end of 2015 and early 2016.”
The ongoing legal process will almost certainly have to be listed as a risk factor when Royal Mail publishes its IPO prospectus in the next few weeks. Any change in the company’s tax status could eat into profits and potentially affect dividend pay-outs.
Wells added: “I think they are singularly focused on the privatisation and they have not been receptive to the wider issues of competition and creating a level playing field and VAT is a key part of that.”
But Royal Mail claims it already meets the necessary European and UK legal requirements for exemption.
A spokesman said: “The removal of the exemption would increase the postal costs of charities and other businesses which are unable to recover VAT. This would not only be to the detriment of those organisations, but would also potentially drive business away from the postal market in general.”
The move comes as the Government launches a low-key marketing campaign to promote the sell-off. Ads, devised by Engine Group, have been running in the weekend press and point readers to a dedicated website, www.gov.uk/royalmailshares‎, where they can get further information.

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