Calls to scrap lower VAT charges for charities on bulk mail could be referred to the European Court of Justice.
TNT have objected to an arrangement which allows organisations that cannot reclaim VAT such as charities and financial services firms to agree separate contracts for “upstream” and “downstream” services.
HM Revenue & Customs currently allows buyers of bulk mail services to pay private companies to sort mail and deliver it to the Royal Mail, who in turn are paid separately to take post to the door.
Private providers charge VAT on their “upstream” services, but Royal Mail does not charge VAT for the downstream delivery services, which make up most of the cost of the bulk mail services.
A commercial firm, unlike a charity, would normally sign a single-delivery contract, which would require it to pay VAT on both upstream and downstream services, because it can reclaim the VAT.
HMRC’s agreement with charities, allowing them to sign separate upstream and downstream contracts, was made after an earlier ruling in January 2011 by the European Court of Justice that mail services open to competition should be standard-rated for VAT.
Now a High Court judge in a judicial review has found that TNT’s complaint that the existing agreement creates unfair competition with its services is “arguable.”
Mr Justice Parker said: “I would invite the parties to consider carefully this judgment with a view to exploring the best way forward.
“At the moment I am inclined to think that a further reference to the Court of Justice may be desirable.”
Charities finance experts say charities should budget for a future increase in bulk mail bills in the future, with the possibility of the exempt status of downstream services being withdrawn.