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Are you entitled to a VAT repayment?

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19 May 2010
Read on to see whether your business can claim a VAT refund from HMRC on postal services purchased from Royal Mail.

Following the recent European Court of Justice’s decision in a case brought by TNT, HMRC accept that some Royal Mail services should be liable to VAT. Previously all Royal Mail postal services had been treated as exempt from VAT.

Royal Mail postal services to be liable to VAT
The services which will become liable to VAT at the standard rate (currently 17.5%) include:

  • all individually negotiated services
  • Parcelforce services
  • door-to-door (unaddressed mail)
  • mailroom services
  • any services not subject to any price and regulatory control

Royal Mail postal services to remain exempt from VAT
The services which will remain exempt are those which Royal Mail is obliged to provide under, or pursuant to, the terms of its licence. These include:

  • stamped mail
  • regulated services
  • access to its network for private operators

Date of change
The services detailed in the first list above will become liable to VAT from 31 January 2011.

VAT refunds
Although the change does not happen until 31 January 2011 HMRC have accepted that the change will have retrospective effect for reclaiming input tax.

If your business has purchased any Royal Mail postal services in recent years which are to become liable to VAT you may be able to claim a repayment. The repayment will be based on the input VAT which is deemed to have been included in the price you paid.

Clarity needed
HMRC has stated that claims will be subject to the usual four year time limits, but some commentators believe that a longer period is appropriate because the claim relies on the direct effect of EU legislation.

HMRC also say that they will consider evidence that “input tax has been incurred on the supply” – how can this evidence be provided, if the supply has always been treated as exempt under domestic law?

Despite these uncertainties, protective claims can and should be made to ensure the maximum repayment.

Make a claim
To decide whether to make a VAT repayment claim and to find out how to make one, contact Julian Millinchamp on 01242 237661 or 

Consequences for organisations which cannot recover VAT
The introduction of VAT on some of Royal Mail’s postal services will cause extra costs for organisations such as:

  • charities
  • not-for-profit organisations
  • other businesses unable to recover VAT

For these organisations their Royal Mail VAT inclusive costs will increase from 31 January 2011.

To pre-empt the change we recommend such organisations review their contracts with Royal Mail to ensure costs are minimised.