If you have a courier business in the UK or deliver goods and services, it is essential to check “is there VAT on postage?” Generally VAT applies to almost all items in Europe particularly in the UK and Ireland. VAT rules and regulations are maintained by a government body- HMRC.
Due to its widespread application, VAT has become a complicated subject. Its rates for all goods are not the same. Instead, they vary from item to item. That is why it often becomes difficult for people to comprehend VAT on stamps, posts, and related services.
Those who want to open an online ecommerce store business in the UK or want to avail of courier services for professional purposes should be well-informed about VAT legalities. Go through this article to know about VAT on postage, stamps, and shipping services in the UK.
Postage is a universal public service facility. That is why most people believe there is no VAT on postage. But in actuality, it is not true. The VAT is added to the shipping charges according to the “Composite Supply Rules”. According to the Composite Supply Chain rule, if the goods are eligible for VAT, then the shipping amount becomes inclusive of the price.
The buyers are unaware of this price because the postage VAT is hardly included in the total price. Thus, if you want to reclaim the postage VAT from HMRC, you must ask the seller to mention the postal charged VAT in your invoice explicitly.
However, the VAT rules will differ if the shipping containers are returnable, i.e., owned by the supplier. In this case, the shipping VAT will not be charged as the courier company, or supplier owns the delivery containers. Two postal categories should be discussed while learning about VAT on post.
The Royal Mail courier services offer two types of facilities, i.e., postal and parcel. All the Royal Mail Postal services are zero-rated, i.e., there is a postage VAT exempt on them. Since there is no VAT on the Royal Mail Postal services, your business cannot reclaim the VAT on this facility from HMRC.
On the other hand, Royal Mail Parcel services are not entirely zero-rated. Some services are charged VAT at a reduced rate, while others are standard-rated. The standard-rated Royal Mail Parcel services include the following;
The Royal Mail Postal services are not VAT exempted. Therefore, you can reclaim VAT on the postal services from HMRC. However, for reclamation, you must have an invoice entailing all details regarding VAT charges.
Independent courier services are liable to charge VAT on postal services if they deliver standard-rated products. The standard rate for VAT in the UK is 21%. Thus, if the products fall under the standard category, you must charge the customers 21% VAT on postal services. However, remember this VAT fee will be charged according to the shipping prices, not the products' prices because you are not selling the product but shipping it.
Also Read, Is There VAT on Parking Fees and Fines? Off Street Parking
If you run a courier service, you must deliver posts using stamps. Thus, if you don’t know about VAT on stamps and don’t include it in the delivery charges, you may end up paying it out of your pocket. That is why learning about VAT on stamps is as crucial as analyzing taxes on postal services.
Royal Mail Class 1 and 2 stamps are exempted from VAT. But imported postage stamps are not VAT exempted; they are standard-rated. Similarly, a few private or independent companies with postage stamps are standard-rated for VAT.
Charges of standard national letter stamps have been increased from €1.25 to €1.35 since February 2023, contrary to standard international letter stamps and the Digital Stamp, which will remain the same. However, if you want to learn more about postal rates, you can visit the Post website.
The revolution of e-commerce has prompted many businesses to open online businesses. Unlike physical shops and companies, online businesses also have to tackle complicated tasks like shipping and delivery charges. Similar to postal services, the VAT on delivery charges also depends upon the category of goods and services.
If the item belongs to the zero-rated category, you must not charge VAT from customers on shopping charges. However, if the products’ category is standard-rated, 21% (standard) VAT on delivery charges will be charged. For instance, if the delivery charges are 10 pounds, its VAT will be 2.1 pounds.
In some situations, the shipping charges are inclusive of the product's price. For instance, you start a "Free Delivery" offer on your website. Then in such a situation, you will charge VAT on your products. For example, your item is worth 20 pounds; it is standard-rated, but there are no shipping charges. Then in such a situation, the VAT will be charged on the product, around 4.2 pounds.
In Ireland, the delivery charges are included in the total price of the goods and services being supplied. However, these charges are dependent on the VAT rate that applies to those goods and services. Delivery time would vary with the destination. Generally, the standard post items are delivered on the next working day in Ireland, contrary to international items, which may take three to seven working days.
Also Read, Everything You Need to Know About VAT as a Sole Trader
Final Verdict
Acknowledging the VAT on postage is essential, as it helps you determine whether you can reclaim taxes from HMRC. If the postage is zero-rated, you cannot reclaim the VAT amount from HMRC, as you had not originally incurred any VAT.
But for reduced, super-reduced, and standard-rated products, you must charge 4%, 12.5%, and 21% VAT, respectively. If your shipped items belong to these three categories, you must charge the customers VAT according to the corresponding rates. Otherwise, you may have to pay the incurred VAT out of your pocket, as HMRC obligates it.
FAQs
The carriage inward charges imply the shipping charges incurred by the purchaser when they receive their goods. On the contrary, carriage outward refers to the freight cost the seller covers to transport the goods to the customer.
The Royal Mail stamps are VAT exempted. Thus, you don't have to pay VAT on them. However, few courier companies charge VAT on their postage stamps. So overall, VAT on stamps differs from company to company.
Rían Doyle
I'm a VAT professional with years of experience helping businesses with compliance and reporting. My goal is to simplify VAT calculation and provide valuable insights through my engaging writing style and clear explanations of complex concepts.
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