Is there VAT on postage?5 Sep 2020
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.
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
Calculating VAT on postal and delivery charges can be complex and time-consuming.
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