Is there VAT on postage?

If you deliver goods to your customers by post or by courier service, it’s important to check if there is VAT on postage. The question is not straightforward because the requirement to charge VAT on postage depends on a number of factors, including the type of product you are delivering, the method of delivery and the way in which you apply postage charges to your products.

This article looks at different scenarios relating to postage VAT, including situations in which postage is exempt from VAT.

VAT and the method of delivery

You have a number of different options for delivering products to customers. These include:

• Using Royal Mail postal services

• Using Royal Mail parcel services

• Using independent parcel or courier services.

Royal Mail postal services

If you use Royal Mail postal services, you do not charge VAT on postage, even though you may charge customers for the cost of postage. This is because Royal Mail postal services are considered ‘universal postage services’ and are exempt from VAT.

While you cannot charge customers VAT on this method of delivery, you cannot claim back any VAT on the cost of the Royal Mail service.

Royal Mail parcel services

However, if you use Royal Mail’s various parcel services, you must charge customers VAT at the appropriate rate. You can also reclaim the VAT you pay Royal Mail for providing the service.

Royal Mail’s parcel services that incur VAT charges include:

• Special Delivery Guaranteed by 9am™ (stamps, franking and account)

• Special Delivery Guaranteed by 1pm™ (account)

• Royal Mail Tracked 24 and Royal Mail Tracked 48

• Royal Mail Sameday®

Independent parcel or courier services

Similar to Royal Mail, if you use independent couriers or parcel services to deliver your products, you must charge customers VAT on the delivery charge, and you can reclaim the VAT paid to the company providing the delivery service.

VAT and the type of product delivered

Regardless of the method of delivery, VAT postage can only be applied to products that are themselves subject to VAT at the standard rate.

This means that when you deliver zero-rated products, you cannot charge VAT on any postal or parcel delivery costs.

The same principle applies to delivery of products that are exempt from VAT. You cannot charge VAT on any delivery charges.

Related: How to avoid VAT when buying a van for business

VAT and the ‘Delivered goods’ concept

Products that are delivered to a customer, rather than collected by the customer, are treated in VAT terminology as ‘delivered goods. From a VAT perspective, the cost of the product and the separate charge you make for delivery are treated as a single composite supply. Any VAT that applies to the product also applies to the delivery element at the appropriate rate of VAT.

This rule applies, regardless of the delivery options the customer chooses. For example, you might offer standard delivery, express delivery, next day delivery, timed delivery or any other option. The same rule applies.

VAT and ‘inclusive prices’

However, if the price you charge customers is an ‘inclusive price’ and there is no separate charge for delivery, VAT is only applied to the product price. You may be able to recover VAT on any postage costs you incur in providing ‘free postage’ or ‘all-inclusive prices’.

VAT on delivery of multiple products

If you agree to make a single delivery of multiple products that incur different rates of VAT, you must only charge VAT on the proportion of the delivery cost that relates to VAT-rated products.

For example, the consignment for delivery includes two products that incur the standard rate of VAT, one product that is zero-rated and one product that is exempt from VAT. If a single delivery charge applies to all four products, you can only apply VAT to 50 percent of the delivery cost.

Related: VAT in the food industry

Professional support

Calculating VAT on postal and delivery charges can be complex and time-consuming.

If you would like advice on any aspect of VAT on postage or help with your VAT tax return, our experienced team of small business accountants can help.

Get in touch with us on 0207 043 4000 or info@accountsandlegal.co.uk.