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HMRC internal manual

VAT Postal Services

Law: the Postal Services Act 2011

The Postal Services Act 2011 (PSA 2011) provided for the introduction of a regulatory framework based on general authorisation to replace the licensing regime that was introduced under the Postal Services Act 2000. As Group 3 of Schedule 9 to the Value Added Tax Act 1994 referred to a licence duty that no longer existed after the changes are made, the legislation was amended to maintain the scope of the VAT exemption for postal services.

The amendments to the VAT legislation were made by the Postal Services Act 2011 (Consequential Modifications and Amendments) Order 2011 (SI 2011/2085), which took effect from 1 October 2011. This date coincided with responsibility for postal services regulation transferring from Postcomm to Ofcom. Licences ceased to have effect at this time, with a general authorisation regime coming into effect. For a transitional period, Schedule 9 to PSA 2011 anticipated the imposition of regulatory conditions which retained substantially the same effect as those that were imposed under the licence. In other words, Royal Mail continued to be obligated to provide services covered by:

  • the Universal Services Obligation (USO, see VPOST4250),
  • access (see VPOST4400) and
  • regulated services.

most of which remained subject to some form of price control.

The transitional period ended when Ofcom set new Regulatory Conditions with effect from 1 April 2012. Broadly speaking, under the PSA 2011 Ofcom is now only able to regulate and price control USO and access services. Non-regulated services have automatically become taxable under the current VAT legislation in force - Royal Mail remains the sole universal service provider and thus the only business able to make exempt supplies of postal services.