TNT had argued that, following the deregulation of the postal market in 2006, Royal Mail should no longer be afforded the competitive advantage of not having to pay VAT.

However, the court upheld Royal Mail's VAT exemption on the grounds that it was the only universal service provider, which marked a fundamental difference between its services and those of its competitors.

"Royal Mail supplies postal services under a legal regime which is substantially different from that of an operator such as TNT Post," the court said.

"Only the supply by the public postal services acting as such, in their capacity as the provider of the universal postal service, are exempt."

David Robottom, a consultant for TNT, told PrintWeek's sister site, BrandRepublic, that TNT had a strong case due to an inconsistency in the way VAT is applied to the UK market.

He added: "It creates an imbalance in competition, particularly for financial services and charities, as these sectors can't claim VAT back."

Meanwhile, Royal Mail has sparked controversy after imposing a pay freeze on its 181,000 staff, in a move that is expected to anger the Communication Workers Union (CWU).

The pay freeze was announced as the government pressed ahead with plans to sell a 30% stake in Royal Mail to a rival operator in order to safeguard the future of the postal group.