VAT on certain postal services provided by Royal Mail will come into effect on 31 January 2011.
The changes are the result of a European Court ruling which decided that only the Royal Mail’s core activities were eligible for VAT exemption, and that all other services that compete with commercial operators should be subject to VAT. Normal stamped or franked mail and standard parcel deliveries will not be affected, but the new VAT charge will apply to services provided under contracts where delivery terms and prices are individually negotiated between Royal Mail and its customers. Royal Mail will be forced to charge VAT on such services as tracked and same day deliveries, catalogue services and unaddressed door to door mailings.

Most businesses will be able to recover the VAT charged to them by Royal Mail, and only heavy users of this type of mailing contract whose VAT recovery is restricted are expected to be affected. More details can be found on the Royal Mail website.