TNT Post UK Ltd, R (on the application of) v HM Revenue and Customs & Ors

Permission to seek judicial review should be granted where a challenge to the scope of a VAT exemption raises an arguable question of EU law with substantial practical and public importance. The exemption for public postal services must be interpreted consistently with the VAT Directive, including strict construction, the public-interest purpose of the exemption, and fiscal neutrality. It was arguable that regulated access services supplied by a universal service provider might fall outside the exemption, even though they were provided under a regulatory regime connected with the provider’s universal service obligations. Delay did not justify refusing permission where the issue was important, the delay was not inordinate, and the legislation remained vulnerable to challenge by others or by the European Commission.

This was a renewed application for permission to apply for judicial review. The claimant challenged the compatibility with EU law of the UK VAT exemption for access services supplied by Royal Mail, the designated universal service provider.

The access services enabled other postal operators and users to use Royal Mail’s network for final-mile delivery. The claimant argued that those services were not part of the universal postal services strictly defined under the Postal Services Act 2011 and were therefore outside the exemption in the VAT Directive and domestic legislation.

Permission had previously been refused on grounds of delay and lack of merit. The central issues were whether the claim was properly arguable and, if so, whether the delay should nevertheless prevent it proceeding.

1. Permission granted. The court did not determine the substantive compatibility of the exemption with EU law. It decided only that the claim was arguable and should proceed.
2. The Court of Justice’s judgment in TNT Post UK Ltd v Revenue and Customs Commissioners (Case C-357/07) [2009] STC 1438 was capable of bearing two interpretations. It could support the view that exemption extended to services supplied by a universal service provider under the legal regime uniquely applicable to that provider. It was also arguable that the exemption covered only services falling within the description of universal postal services.
3. The claimant’s reliance on strict interpretation of VAT exemptions, the public-interest focus of the exemption, fiscal neutrality and avoidance of competitive distortion was properly arguable. Access-service users were not necessarily direct and immediate consumers of universal postal services, and the exemption could arguably disadvantage competing operators, particularly in relation to customers unable to recover VAT.
4. The regulatory connection between access services and universal service obligations provided substantial counterarguments. Access was required under section 38 of the Postal Services Act 2011, the relevant postal network was defined by reference to the systems and resources used to comply with universal service obligations, and access conditions were subject to regulatory controls intended to promote competition and benefit users. Those matters did not make the claimant’s case unarguable at the permission stage.
5. There had been delay. The claim was issued outside the applicable three-month period, after an unsuccessful attempt to amend earlier proceedings. Nevertheless, the defendants had known that a claim was forthcoming, the further delay was not inordinately long, and the issue raised a point of principle and practical importance. The public interest therefore supplied a compelling reason to allow the claim to proceed.
6. The judge indicated that a further reference to the Court of Justice might be desirable because the earlier reference had not specifically addressed access services. The parties were invited to consider the appropriate way forward.

The judgment records that permission had previously been refused on the papers, on grounds of delay and lack of merit. This was a renewed application. The Administrative Court granted permission.