This is the second post in a series of VAT related blog posts. I do pick the most interesting of subjects. It is all to do with postage.
Most accountants and bookkeepers will tell you that postage is exempt from VAT – and that is perfectly true. The basic position is that posting letters and parcels via the Royal Mail (post office to you and me) are exempt from VAT. Happy days. BUT, as you would expect, it has it’s complications for businesses and it is often an area that VAT inspectors look at if you post/courier items.
Courier companies and other delivery services will be subject to VAT, but so are some Royal Mail post office charges. It all comes down to what the business is selling and how it is delivered.
A business sells goods and makes a charge for the delivery of those goods delivered by the post office / Royal Mail. The cost to the seller is exempt of VAT, but the issue is what should be charged to the customer? The general rule is that the postage cost follows the VAT rules of the goods being supplied – assuming you make a supply of delivered goods.
Three examples of this:
Customer A in the UK purchases 3 audio book CD’s. These are posted via the Royal Mail with a postage cost of £3.00. As CDs are a standard rate VAT, then the £3.00 postage must also be standard rate VAT even though VAT was not charged when the postage was purchased. As VAT was not charged on the purchase, then you cannot reclaim any VAT on postage.
Customer B in the UK purchases 3 printed books. These are posted via the Royal Mail with a postage cost of £3.00. As books are a zero rate of VAT, then the £3.00 postage must also be zero rated VAT and no VAT charged on the postage.
Customer C in Switzerland purchases 3 audio book CD’s. These are posted via the Royal Mail with a postage cost of £3.00. Although the CDs would be standard rate of VAT, Switzerland is outside the EU so therefore the export would be zero rated, hence the £3.00 postage will also be zero rated.
And now the thing to look out for: The above assumes that the business is contractually obliged to ship the goods. But, if they sell the products ex-works but agree to post as a separate “contract”, the delivery will always be standard rate of VAT irrespective of the VAT rating of the goods.
In summary – if the business supplies delivered goods, then the postage charge follows the liability of the goods even if you don’t pay VAT on the postage purchase. VAT incurred on delivery costs can be reclaimed. Just remember, this is for postage via the Royal Mail. If you post using a courier, you must charge VAT on the postage.
Always discuss financial matters with your accountant. These blog posts are here for information purposes only.