If you do not charge VAT on postage to your customers, you will be stuck covering the costs yourself, it’s not possible to backdate costs or recover them later on. The process is more complex than you might think, as you can’t just add standard-rated VAT to each mail delivery charge. We hope to explain this in detail further on.
Sending products via post counts as a single composite supply. Because of this, postage is added as part of the product’s total cost, and whatever VAT rate is applicable is what is included.
For example, businesses don’t list the price of postage within any online product descriptions. However, when customers reach the online checkout, an array of mail delivery services and options are offered for VAT purposes. No matter what option is selected, whether standard postage or special delivery, customers are charged VAT on postage and the purchased item itself.
If you offer ‘free’ postage, also known as an inclusive price, you then charge VAT within the product’s price that a customer will pay. When selling goods with an inclusive price, it does not reference or mention delivery or postage within the cost.
When paying postage taxes, you must remember to reclaim what you’ve been charged. If the delivery service provider is registered for VAT, then non-postal services are charged at the standard rate.
It’s worth noting that special postage stamps, such as next-day or guaranteed delivery, are also liable for the standard rate on the mail postage price.
Excluding Northern Ireland and EU countries, goods that are shipped internationally are exempt from the usual UK VAT treatment, meaning you can ignore VAT on a postage cost altogether.
However, many countries have a separate charge called import VAT, this includes the UK and EU countries. A good idea is to contact the local tax authorities of the package’s destination country, which will allow you to account for any import VAT within your shipping price.
Suppose the package of goods you post contains products with different rates (some zero-rated, some standard-rated). In that case, you need to divide the delivery charges according to the goods to account properly for VAT. You can use any reasonable apportionment you see fit, either based on the retail price or the item cost itself.
For example, if you’re selling goods to a VAT-registered organization, you don’t need to worry about any calculations, as everything in the package is automatically considered zero-rated.
A business that orders goods incurring standard rate VAT can claim the VAT as a business expense. On the other side of the coin, a business that sends delivered goods and delivers them via a Royal Mail Post Office is exempt from VAT, so there would be nothing to reclaim on that front.
However, it must be noted that if the business uses a different courier or delivery company, the business will be charged VAT as per normal rules, and it can be reclaimed.
Below, we discuss some frequently asked questions concerning VAT on postage. If you have any additional questions, feel free to contact the TaxBite team for more assistance.
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If the business you are buying goods from ships the package via the Post Office, you will not be paying VAT on the mail delivery charge. If they use a courier or delivery service to post the goods, you will pay VAT on the delivery fee. Some businesses will include the VAT within the product cost if the postage is “free”, while others just include it in the customer’s delivery charge.
As a company, it’s important to consider the delivery service you are using. If you opt for the Post Office, you will be subject to zero rate VAT, including postage stamps and ‘universal postage services’. You’ll likely be charged the standard rate if you decide to use delivery services or a courier.
Delivered goods have a delivery cost included in the total amount a customer has paid. If you as a business charge customers for goods with delivery, they are classed as single-supply goods, meaning you need to charge VAT on the total amount. It is recognised as a separate supply if you arrange delivery with the customer after the sale.
If you offer free delivery, VAT is payable on the goods themselves. In the case of delivered goods that the customer would like to view first before buying, postage taxes will be payable regardless of what the customer decides to purchase.
If you supply goods to UK retailers or a business customer as per a contract, the goods will not be classed as ‘delivered goods’, meaning you must pay the standard rate on delivery costs, no matter what goods are supplied to the customer.
Printed matter is zero-rated, meaning there is no VAT on postage. Printed matter is characterised as brochures, booklets, pamphlets, and leaflets. If you’re posting printed matter alongside delivered goods, you can offset the printed matter only to calculate and pay VAT the usual way for the delivered goods.
If the business you’ve paid postage costs to has used a courier or delivery company, you will have been charged VAT, meaning you can reclaim it. However, if the company has used the Royal Mail Post Office to send the package to a customer, for example, they will not have been charged any. If no VAT was charged, there is nothing to claim, as you did not pay for it in the first place.
The past few years have been a challenging and confusing time for many. As a result of Brexit, many businesses in the UK are finding that understanding what to do about taxes on postage to those in the EU is quite confusing.
If you post goods to a VAT-registered company, the total retail price, including postage, is charged at a zero rate. Make sure the company supplies you with their EU member state VAT number for VAT purposes, which you can check the validity of via VIES VAT number validation which covers EU VAT numbers.
However, if you’re posting goods to a private customer who is not buying on behalf of a VAT-registered company, you must charge VAT just as you’d charge it to a UK-based customer.
It’s worth noting that if you’re shipping goods internationally, outside of the UK and the EU, taxes apart from import are not applicable. The logical conclusion to this is that businesses can ignore VAT rules in this case.
You should always use the Value Added Tax rate for the goods you’re shipping. The VAT on postage costs differs depending on the type of goods or products you post to your customers.
At the present moment, there are three VAT rates: 0%, 5%, and 20%. For information regarding which items fall in each VAT category or rate, contact our team of chartered accountants, who can help and advise you.Speak To A Chartered Accountant
Most services and products that are sold online charge VAT at the standard rate VAT of 20%, but a large proportion of delivered products for kids, for example, may be charged at a reduced 5% rate or zero rates. Another thing to be aware of is that you can’t just add VAT to postage as and when a customer orders; a few rules must be adhered to.
Below, we’ve outlined a few HM Revenue & Customs rules that may help you decipher the VAT on postage costs for a product you’re selling to your customers.
It’s important to keep financial records of your shipping costs for tax purposes, much like any other products or services you sell. The typical transaction should show that you purchase shipping services through a broker or carrier and then sell it to your customer.
Value Added Tax is paid when you purchase the shipping yourself, followed by charging your customers VAT on postage costs that are then paid to you. This should show in your balance sheet as either the complete invoice amount in one entry or the products/goods and shipping costs separately itemised.
For assistance in handling shipping costs within your financial records, submitting a VAT return, or anything related to accountancy, the team of accountants at TaxBite are here to help. Speak to a tax advisor using the button below.
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