If you trade online it’s almost certain that you use Royal Mail (and possibly also Parcelforce for some or all of your deliveries. If so then you’ll have been hit with a 20% price increase on some services.
There’s no escaping the VAT rise and if you use PayPal postage you’ve probably already noticed the 20% price hike on applicable services. For instance a ParcelForce24 delivery, previously costing £10.99, has risen in price to £13.19.
Services that are affected are International Airsure (to EU destinations), Special Delivery by 9am and Royal Mail Tracked as well as any Special Delivery service through a contract. All Parcelforce domestic and EU services will also attract VAT at 20%
Some services that don’t attract VAT will do so if purchased with enhancements such as Special Delivery with Saturday Guarantee or consequential loss, Standard Parcels with additional compensation, International Airmail when purchased with Airsure and International Signed for when purchased with Advice of Delivery.
The VAT impact is greater for Royal Mail and ParcelForce than for any other product or service. This is because it’s a 20% increase in pricing – previously there was no VAT charged on any of their services.
Those that can reclaim the VAT will be price neutral (they’ll pay the VAT and reclaim it on their VAT return) but those unable to reclaim VAT might be well advised to look at alternative services.
Although VAT has risen for other carriers it’s a more palatable 2.5% rise as they were already charging VAT prior to the increase. Jon Tobbell, myHermes Commercial Director, has criticised Royal Mail for its decision to charge VAT on some of its services, arguing it will damage the profitability of small businesses. He points out that many providers were already offering cheaper services than Royal Mail and the price increase makes alternatives even more competitive.
It’s a tricky situation for Royal Mail, on the one hand they do provide a generally superb service and are the only company to offer delivery to any door in the country at a fixed price with no surcharges. On the other, in order to compete, they need to shake of the shackles of regulation and in doing so they’re losing the privileges that came with regulation, including their VAT exemption.
For the future, as more Royal Mail services come out of regulation, expect to see additional postage options start to attract VAT. On the positive side once a service is no longer regulated it does give Royal Mail the flexibility to offer discounts which is something they’ve never been able to do before. The big question is how long it will take before Royal Mail customers can sit down and negotiate their contract prices for the first time on an individual basis.
It’s definitely now time for eBay to sit down with Royal Mail, look at de-regulated services such as the excellent Royal Mail Tracked offering, and cut a nationwide deal for eBay sellers. With the buying power of all eBay sellers combined there’s a strong case for Royal Mail to offer a discounted service tailored for eBay.
I’m not sure that Royal mail are yet of a mindset to negotiate an eBay delivery service with a price based on the combined shipments from all eBay sellers but the technology is already in place (with PayPal postage) so all that’s required is the will to make it happen.
There’s a deal to be done which, if successful, could see them winning back business back from alternative carriers. That’s a much more attractive proposition for Royal Mail than losing customers due, to the 20% price increase, which is the most likely outcome over the next few weeks.