A spokesman for the Department of Trade and Industry said: 'VAT on parcels is something that we are considering. It's a complex issue, and no decision has been taken yet. But we have acknowledged that it is an issue.'
When he announced a Green Paper on Post Office privatisation in the House of Commons on Thursday, Mr Heseltine said: 'I can assure the House that under any proposals we finally adopt, stamps will continue to be exempt from VAT.'
But Department of Trade and Industry officials concede privately that they will come under considerable pressure to put VAT on parcels sent commercially, so that Parcelforce can be seen to be competing on equal terms with private-sector competitors such as Securicor, TNT and Great Universal Stores.
Without extending VAT in that way, the Post Office operation would continue to have a 17.5 per cent price advantage in selling its services to individuals and VAT-exempt organisations. These include charities, hospitals, banks and insurance companies.
The problem is that it is hard to distinguish between commercial parcels and those sent by individuals as presents.
By promising to keep stamps VAT-free, Mr Heseltine has made a solution more difficult. He could otherwise have set a price or weight threshold for VAT to apply.
However, industry sources were confident that parcels falling within the VAT net could be accepted for posting with a proof of payment other than a stamp.
George Brown, secretary of the Post Office Users' National Council, said: 'This is something you are right to question. As far as we know, it's an unsettled area, and we need more clarification from Heseltine. One could deduce that the question of VAT on parcels has been glossed over because people put stamps on parcels. But it doesn't have to be that way.'
Last week KNP, the Dutch postal and telecommunications service, announced that it was to privatise. A spokesman said that it has to charge VAT on items over the 500-gram limit on its monopoly.
Royal Mail/Parcelforce would gain if it had to register for VAT, as it could then offset payments of tax on its expenses against its VAT receipts. At present, like any unregistered individual, it has to pay VAT on goods or services from VAT- registered suppliers. That discourages the Post Office from subcontracting work.
Second round, page 3Reuse content