Royal Mail services that are covered by the Universal Service Obligation or are under price control are exempt from VAT. This includes postage stamps for general use. From April 2012 however, VAT was been added to all bulk mailing services.
It is possible for charities to use Downstream Access (DSA) services. DSA providers have an agency agreement with Royal Mail that allows customers to retain VAT exemption for almost all of the transactions. The services in question are subject to price control, so they are likely for the foreseeable future to continue to benefit from exemption, unless and until there are further changes.
Under the agreement, the DSA provider can act as the charity’s agent and secure Royal Mail final mile delivery services on the charity’s behalf (by taking the mail to regional hubs). This means that the charity will only pay VAT on the upstream element (collection and sorting by the DSA) with no VAT charged on the ‘downstream’ element (the final mile delivery by Royal Mail). The downstream element is where most of the cost lies.
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