The Government recently announced that standard rate VAT will start to apply to some postal services from 31st January 2011. For many years, postal services have been exempt from VAT, but a court case has led to a change in the rules about VAT on postal services throughout the European Union.

By law, Royal Mail must now charge VAT at the Standard Rate (20% for UK customers) on some postal services within the European Union, including within the UK, from 31st January 2011. Most Royal Mail customers will be unaffected by this change, since most services will stay exempt from VAT, for example, First and Second Class stamped and franked mail, standard parcels, Special Delivery™ Next Day (stamped and franked), standard Airmail and many business mail services including Mailsort®, Cleanmail® and Packetpost™. This means there will be no VAT to pay when you buy stamps.

Royal Mail now has to charge VAT on some of its premium services, and on non-mail and logistics services. The more popular services which will be liable to VAT are:

• Business Collections
• Special Delivery™ Next Day (on account only)
• Door to Door
• Special Delivery™ 9.00am
• Timed Delivery
• Royal Mail Tracked® and Tracked Next Day
• International Airsure® (to EU countries)

Companies that are high users of Royal Mail services may need to review how they use their services, and the effect these changes will have on their postage costs.