VAT isn’t always utterly straight-forward to understand. When it comes to postage, it can get even more confusing.
Is postage exempt? Do I charge VAT on packaging and delivery? Who pays the VAT on my carrier charges?
It’s a minefield. Never fear, here are some examples to help simply the process.
Charging VAT on postage
Posting letters or parcels with Royal Mail is exempt from VAT (unless you’re recharging those costs), however, other couriers or delivery costs charged by delivery companies are subject to VAT. Businesses that supply delivered goods and use the Royal Mail Group for delivery will not be charged VAT, so there will be no VAT to reclaim. However, where other courier and delivery companies are used, VAT will be charged and that VAT can be reclaimed in the normal way.
Using the government’s current VAT on postage guidelines, these examples should answer whether or VAT is owed for postage on ‘delivered goods’.
I deliver goods to customers, but delivery is free
If delivery is free (or accounted for in the price of the product itself), VAT is accounted for by the sales price of the goods.
I deliver goods to customers and charge them for postage
Whether the postage is separately itemised, or included in the price, the VAT is based on the liability of the goods.
I deliver zero-rated goods
If you deliver zero-rated goods (e.g. printed materials), then the postage is zero-rated also.
I am a retailer using a retail scheme
Accounting for delivery charges will depend on the type of scheme you are registered under. Check the relevant guidance.
Claiming VAT on postage
Postage costs are a business expense. When the courier charges you VAT, you claim it back in the same way you’d claim back any other VAT-charged expense.
Charging VAT within the EU
At the moment, if you sell goods or services to someone who is not VAT registered in another EU country, you must charge VAT as you would for a UK customer. You must include the sale in your VAT return, as normal.
If you are selling goods to someone who is VAT registered, in the EU, you can zero-rate the supply for VAT purposes as long as:
- You sent goods out of the UK to an EU country
- The person you are sending to is VAT registered in their EU country and you have their VAT number
- You have evidence of the sale and postage (sometimes known as ‘evidence of removal’)
You must keep the evidence of this sale for 6 years, in case HMRC would like to see it and you must still include zero-rated sales on your VAT return.
To keep up to date with changes on the postage VAT guidance, check with HMRC. After Brexit, there may be several changes to the ways in which we claim and charge VAT, both inside and outside Europe.