You’re breaking into mail and online orders as a way to boost sales and are in the process of creating a price list for your website. The price you charge for postage etc. needs to be to reflected in this, but should you add VAT to it?
VAT and Post Office charges
When you buy postage stamps or pay for standard postage for your franking machine, you’ll pay no VAT because “universal postage services” provided by the Post Office are exempt. The logical conclusion is that you can ignore VAT as far as postage is concerned when working out how much to charge your customers for goods you have delivered to them. However, that’s incorrect and if you don’t charge your customers VAT you’ll have to meet the cost of it out of your pocket as it will be impossible to recover it from your customers later on.
Delivered goods plus postage
When you supply goods by post it counts as a single composite supply for VAT purposes. That means the postage is part of the total cost of the goods and so the VAT rate applicable includes the postage.
Example. Acom Ltd runs an online shop selling small electrical tools. When it advertises items on its website it shows them without postage, which is added at the time the customer pays as they can choose different postage charges depending on how soon they want the items delivered. No matter what Acom charges for postage it must account for VAT at the rate which applies to the items purchased. In Acom’s case that’s standard rate VAT.
Tip 1. If the goods you sell are zero-rated, e.g. printed matter, any postage you charge on top is zero-rated too.
Tip 2. The principle explained in Tip 1. also applies to goods you zero rate for other reasons. For example, where you sell to a business customer located in an EU member state.
Trap. Where you don’t include delivery as part of the sale, but agree with your customer to arrange delivery, and they pay you for this, it counts as a separate supply. The VAT treatment depends on whether the customer is in business and where they are located, i.e. inside or outside the EU (see The next step ). If they are in the UK you must charge VAT at the standard rate.
Where the price you charge your customer doesn’t mention delivery or postage, i.e. it’s an inclusive price or you say “postage is free”, you charge VAT on the price you charge your customer. In other words, the VAT position is identical to that for delivered goods.
Reclaiming VAT on postage costs
Postage costs are just another business expense. Therefore, where a supplier charges you VAT on postage or delivery you can reclaim it subject to the normal rules, e.g. it isn’t connected to you making an exempt supply.
Tip. Where you pay for postage, don’t overlook reclaiming the VAT you’ve been charged. All non-Post Office delivery charges include standard rate VAT (if the supplier is registered). What’s more, many Post Office charges do too, e.g. guaranteed 9.00am next delivery (see The next step ).
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