After some months of speculation, the 2010 March Budget (and the emergency Budget in June 2010) finally confirmed that certain postal services, including individually negotiated services, ParcelForce services, 'door-to-door' unaddressed mail services, and mailroom services provided by the Royal Mail (including ParcelForce) will become subject to VAT at the standard rate from 31 January 2011 (the standard rate increases from 17.5% to 20% on 4 January 2011).
Those affected, including charities and others unable to recover all or part of their input tax, will need to consider whether they can make reclaims, and whether existing postal service contracts should now be renegotiated.
The change in VAT treatment of these postal services arose as a result of a European case involving TNT Post (UK) Limited (C-357/07). The European Court agreed with TNT that individually negotiated postal contracts with the Royal Mail and all contracts with ParcelForce should not be covered by the VAT exemption. For TNT, and other courier providers, this finally put their businesses on a level VAT-playing field with the Royal Mail.
This means that where previously these Royal Mail and ParcelForce contracts were considered to be exempt from VAT, the services should actually have been subject to the standard rate of VAT. As a result, what was previously regarded as a Royal Mail/ParcelForce VAT exempt service of £100 during a period when the VAT rate was 17.5%, could actually have been a supply of £85.11 and input VAT of £14.89.
It may be possible for Royal Mail/ ParcelForce customers to claim a refund of this inadvertently paid (or rather imputed) VAT, retrospectively for a period of up to four years.
Royal Mail/ParcelForce customers, including any charities, that have any individually negotiated contracts with Royal Mail/ParcelForce for mailings or courier services, should therefore consider whether a reclaim of VAT can be made in respect of such contracts. As charities generally cannot recover VAT in full, a claim may still be possible to the extent of the charity's ability to recover input VAT.
The future imposition of VAT on certain Royal Mail and ParcelForce mailings could result in a significant additional cost to most charities in the future. The postage costs of door-to-door mailings, donation envelopes and similarly delivered items are likely to become subject to irrecoverable VAT. Charities should therefore consider renegotiating the value of contracts with the Royal Mail/ParecelForce and consider whether alternative service providers could offer better value.
HMRC does not offer many concessions to charities, but most are hopefully making use of the VAT zero-rating provisions for certain services and goods in connection with some packaged items. If the contractual arrangements are correct, this also includes zero-rating for the postage of such items. How does this work? If you check your receipt for the home delivery of your weekly shopping, you will notice that the delivery charge is zero-rated to the extent that the food items you have purchased are zero-rated. This is due to the grocery store undertaking to deliver the shopping as part of the sale of the food items. The same rule applies for zero-rated packaged items where the supplier is also the person undertaking the postage of such items. Thus if the items packaged qualify for zero rating, then provided the supplier is also the person required to post the items, the postage costs should also qualify for zero rating.
To mitigate any adverse impact of these changes, the immediate response of charities should include:
- considering submission of retrospective VAT reclaims to HMRC without delay to avoid losing out due to the four year time limit for reclaims
- re-examining supply chain contracts to ensure cost effective service provision
- checking that HMRC concessions are fully used, particularly zero rating of certain packaged items.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.