TNT Post success in securing a Judicial Review of Royal Mail’s VAT exemptions, could hit the coffers of tens of thousands of UK charities, according to one leading tax consultant.
The warning follows the decision by a High Court Judge late last month that Dutch-owned company should be allowed to challenge the protections that Royal Mail has against the 20% sales tax.
The challenge refers to both the VAT exemption Royal Mail has on “downstream access” mail and when providing end-to-end delivery services.
Mr Justice Kenneth Parker had previously rejected TNT Post UK’s bid for a challenge to the rules, but decided in late December that after the company came back with a fresh request and additional information, there was a “compelling public interest” in the claim.
HM Revenue & Customs currently allows buyers of bulk mail services to pay private companies to sort mail and deliver it to Royal Mail depots. The Royal Mail is then paid separately to take the post to the door.
If the two services are offered separately, the private providers charge VAT on their ‘upstream’ services to sort the mail and deliver it to depots. But the Royal Mail does not charge VAT for ‘final-mile’ delivery services, which make up most of the cost of bulk mail services.
A commercial firm would normally sign a single-delivery contract, which would require it to pay VAT on both upstream and downstream services, because it is able to reclaim VAT.
But HMRC has agreed that organisations that cannot reclaim VAT, including charities and financial services firms, should be allowed to agree separate contracts for upstream and downstream services.
The postal company TNT has objected to the existing arrangement, saying it creates unfair competition with its services.
And Graham Elliot, a tax consultant at the commercial law firm Withers Worldwide, said that charities should consider budgeting for higher bulk mail bills in the future.
“Any charity that might take advantage of the current exempt status of the downstream service should bear in mind the possibility of that status being withdrawn from some date in the future,” he said.
“While that should not affect current arrangements, it might be appropriate to budget future costs with the potential for VAT being added. In particular, any binding contractual arrangements will need to take into account this potential future liability.”
