The mail operator was informed of the decision by HM Revenue & Customs (HMRC) following a European Court of Justice ruling.
TNT Post, a competitor to Royal Mail, challenged its exemption to VAT, citing that such benefits should not be applied when competing for commercial contracts.
As a result, Royal Mail will now have to charge VAT on the majority of business deals it tenders for.
However, Mailsort 1, 2 and 3 that are used for the Royal Mail's direct mail offering are not subject to the HMRC ruling as they are price controlled.
The ruling is likely to make it more difficult for Royal Mail to compete against rivals such as TNT, UK Mail and DHL.
However, postal consultant David Robottom, speaking to Haymarket title Marketing Direct, said the decision was a "disappointing" one.
"The HMRC proposal doesn't address certain Royal Mail products used by direct mail that are priced controlled, such as downstream access," he said.
The announcement represents another blow to the mail operator, which has had employees take part in a raft of national strikes that crippled direct mail deliveries until an interim agreement was reached earlier this month.
Royal Mail to charge VAT on business client contracts
The majority of direct mail customers have escaped a possible price hike despite Royal Mail being told that it will soon have to start charging VAT on some of its services.
