Royal Mail has been given the stamp of approval to continue having a VAT advantage over its competitors.

But some of its operations will become subject to the tax, according to Denis Holly, VAT specialist at accountants and business advisers Horwath Clark Whitehill in the Midlands.

"For the moment, all we know is that the present VAT treatment of Royal Mail postal services is under review," said Mr Holly.

"I don't suppose with a General Election coming up this is high up the list of major issues for the Government, but it is certainly of vital interest to private sector providers.

"Effectively, they are at a competitive disadvantage when dealing with organisations which cannot recover all their VAT such as banks and other financial institutions, and, of course, individuals."

At issue is a decision of the European Court of Justice in the case of TNT Post UK.

EU law provides a mandatory exemption from VAT for "public postal services'. In the UK, this means Royal Mail. All other postal operators are required to charge VAT at the standard rate.

Following TNT's legal challenge to the scope of the exemption as applied in the UK, the ECJ confirmed the overall position but said some Royal Mail postal services - those which are individually negotiated or not subject to any price and regulatory control - which had been treated as exempt, would become liable to VAT.

HM Revenue & Customs are currently in discussions with Royal Mail to establish precisely which of their services will be affected and has said further guidance will be issued once these discussions are complete.

Mr Holly noted: "Any changes will be implemented from a future date and, in the meantime, all postal services provided by Royal Mail remain exempt from VAT.

"The position needs to be clarified as quickly as possible."