Guide to VAT liabilities on postal services

Ofcom and price controls

With effect from the 2 April 2012 price controls were removed for most Royal Mail products and services including all bulk mail products. This resulted in the products for which price controls were removed becoming liable for VAT at the standard rate.

Royal Mail products/services that are liable to VAT

• All bulk mail services: Advertising Mail, Sustainable Advertising Mail, Publishing Mail, Business Mail 1st Class and Business Mail (This applies to metered mail as well. If you’re using posting services such as Business Mail using a meter, then it will be VAT liable). Services through a standard Royal Mail Account are also liable to VAT.
• Packetpost, Packetsort, Response Services, PO Box Services.
• 1st and 2nd class standard tariff account mail, automated standard tariff large letters.
• Royal Mail’s charges to Downstream Access operators for all services except ‘standard’ letters and large letters (see below).

Royal Mail services that are exempt from VAT

• Services in the Universal Service, for example: 1st and 2nd class stamped and metered mail, standard parcels, special delivery unless posted through Royal Mail Standard Account. It also includes services such as Poste Restante, non-contract international airmail and surface mail, and redirections.
• Royal Mail’s charges to downstream access operators for ‘standard’ letters and large letters only.

Mitigating VAT liabilities through ‘single sourcing’ – a note of caution

‘Single sourcing’ is proposed as a way of mitigating a company’s exposure to VAT liabilities. The logic is that if the mail pack is zero rated, then so too is the postage.

To determine if ‘single sourcing’ applies is complex and there are many factors to consider. The nature and wording of contracts, what supplies are provided and the customer’s expectations can all influence whether single sourcing is a valid approach. Unfortunately there is not any information in the public domain that specifically relates to the supply of mail packs and postage as a single supply – either from HMRC’s published material or the decisions of tax tribunals and courts.

Without any direct legal precedents it is not possible for the DMA to provide specific guidance and we would recommend that you seek professional advice before considering single sourcing. Any VAT arrears arising from the incorrect VAT treatment of supplies are a liability of the business that made the supply, not the client.

The Disbursement option

When ‘posting your client’s mail’, it can be possible to pass the charge from Royal Mail on to the client without charging additional VAT. This is only beneficial if the Royal Mail service is VAT exempt, such as downstream access services.

Subject to having the correct contractual and accounting arrangements in place, postal charges can be a ‘disbursement for VAT purposes’. When they are a disbursement, then the postal charges may be re-invoiced to clients at exactly the price (including any VAT charged by the postal provider) that is paid to the postal provider.

The DMA would recommend that prior to treating any recharge of postal services as a disbursement, HMRC are contacted to confirm that the treatment is correct. When the postal costs are not a disbursement, HMRC clearly states:

“…they become part of your charge for the supply of direct mailing services to your customer and therefore liable to VAT. They will normally be standard rated…”

Further information

More information about postal costs and delivery charges can be found in HMRC Notice 700/24
We recommend that any members dealing with postage costs should seek specialist professional advice about their particular circumstances. Further assistance on postage or VAT matters may be obtained by contacting the DMA Legal Team on 0207 291 3360, or via email legaladvice@dma.org.uk.