Royal Mail could soon become more expensive for businesses.
HM Revenue and Customs (HMRC) have told the operator it will need to start charging VAT for many of its services that are currently exempt.
The ruling follows a judgement in the European Court of Justice in a case brought by rival firm TNT.
Under European Union law publicly owned postal operators are exempt from having to charge VAT on their services.
However TNT successfully argued that this exemption should not apply on commercial contracts subject to a competitive tendering process.
Royal Mail is now in discussions with HMRC about how the ruling will be implemented.
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