VAT on postal services
At present public postal services are exempt from VAT, though the European Commission has argued that this hinders competition in postal services across the EU. This note looks at the prospects for reform.
Under EU law common criteria are set for the VAT base in all Member States: that is, the goods & services which are liable to VAT. As part of this agreement, public postal services are exempt from VAT. In 2003 the European Commission published proposals to amend these rules, which, if adopted, would have required state-owned mail operators – the Royal Mail included – to charge VAT on stamps and other services they provide. At the time the Government’s position was that it was “opposed to VAT on stamps” and “would make this clear in negotiations on the proposals.” The Commission published an amended draft directive in July 2004; this retained the provision to charge VAT on stamps – and on these grounds was opposed by the UK. In the next few years no substantive progress was made on these proposals because many Member States strongly objected to VAT on these supplies. In turn the Commission withdrew the draft directive recently. The Government has made some minor
changes to the scope of the VAT exemption in UK VAT law, though stamps remain free of VAT.