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HMRC internal manual

VAT Postal Services

HM Revenue & Customs
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Law: legal background

EU law provides a mandatory exemption from VAT for supplies of postal services made by the public postal services. Since the introduction of VAT in the UK in 1973, the application of this provision in UK law has been limited to supplies made by Royal Mail Holdings plc (formerly the ‘Post Office Company’), as the public postal services in the UK, designated with responsibility for the delivery of the ‘public interest’ postal service. All other postal operators have been required to charge VAT at the standard rate on their postal services - both before and after full liberalisation of the postal sector in the UK on 1 January 2006.

Following a legal challenge to the scope of the exemption in the UK, the European Court of Justice (ECJ) in the case of TNT Post UK Ltd (Case C-357/07) confirmed that Royal Mail, as the operator providing the public postal service, is the only postal body in the UK eligible to exempt postal services from VAT. However, it has also ruled that exemption only applies to the public postal services (that is, Royal Mail) acting as such and does not apply to supplies made by Royal Mail for which the terms have been individually negotiated (see VPOST4150).

As a result, some postal services supplied by Royal Mail - those which are individually negotiated or not subject to any price and regulatory control - and which had been treated as exempt became liable to VAT at the standard rate. These changes came into effect on 31 January 2011.

A further amendment to the legislation took effect on 1 October 2011, as a result of Article 28 of the Postal Services Act 2011 (Consequential Modifications and Amendments) Order 2011 (SI 2011/2085). This was to maintain the existing VAT treatment following the implementation of the Postal Services Act 2011 (see VPOST3500), which saw the licensing regime replaced by a general authorisation regime.