Is there VAT on postage? Let’s stamp out any confusion
Is there VAT on postage? A tricky question when it comes to VAT on postal services is a bit of a puzzle in the UK.
Whether VAT applies to postage in the UK depends on:
- The item you’re delivering
- The method of delivery
- The way in which you apply postage charges to your products
A general rule of thumb is to imagine the cost of the product and the delivery charge as a package deal. So, if there's VAT on the product, there’ll be VAT on postal services associated with it as well.
But this only applies if you’re using Royal Mail parcel services or an independent courier as the provider. Meanwhile, if you offer an "inclusive price", ie you don’t charge the customer extra for delivery, VAT is only applied to the product price.
Is there VAT on Royal Mail postage?
Services under the Royal Mail postage banner are considered "universal postage services", so they’re exempt from VAT. But when it comes to Royal Mail's parcel services, it's a different story.
VAT rules for postal services state that if you use Royal Mail's parcel services or an independent courier to send packages you'll need to charge customers VAT at the relevant rate. In this context, the relevant rate means the rate that you have to charge on the product. VAT postage regulations also stipulate that if the product is exempt from VAT, the postage will be as well.
Here’s a table to break down postal services and VAT regulations 👇
Royal Mail Postal services
Royal Mail parcel services
Match VAT rate on product
Match VAT rate on product
What are the VAT rates for postage?
VAT rates for parcels and postage reflect the VAT rate of the item you’re sending. For example if you’re sending a coffee machine that has a VAT rate of 20% you’ll also have to charge 20% VAT on the cost of postage.
Current VAT rates in the UK are:
The UK government calculates VAT rates based on goals like boosting the economy or funding public services. They pass laws in Parliament, consider economic conditions, and may adjust rates for political reasons. EU regulations (before Brexit) also influenced rates.
Are there any VAT exemptions on postage?
As we mentioned earlier Royal Mail products that come under the banner of Royal Mail postage are exempt from VAT. The full list of up to date Royal Mail services that are and are not exempt from VAT is available on their website.
At the time of writing Royal Mail products that are exempt from VAT include:
- 1st and 2nd Class (stamps, online, franking, account).
- Special Delivery Guaranteed™ (stamps and franking).
- Royal Mail Signed For™ (if purchased with a VAT exempt service).
- Keepsafe™ (personal and business).
- International Standard.
- International Economy.
- International Signed and International Tracked & Signed.
- All HM Forces Mail (BFPO).
- Redirections within UK (personal and business).
Remember that no matter how you send a package, VAT on postage can only be added to products that are already taxed with VAT. So if you're delivering products that have a zero VAT rate, you can't charge VAT on the shipping costs, although you’ll still need to keep a record of it.
How do postage costs and VAT affect businesses?
VAT implications for postage influence businesses when they’re deciding on prices for their products and how they manage cash flow. The sneaky extra cost of VAT on certain kinds of postage affects profit margins, and is something businesses need to keep an eye on if they want to stay in the green.
VAT registered businesses may be able to get some money back (input VAT) on the VAT they pay for postage, which will help reduce their overall VAT bill. But they must consider how it will affect their cash flow and keep records of VAT transactions, like invoices and receipts for postage, to avoid penalties.
For consumers, postage costs and VAT mean having VAT applicable items delivered to their door is always going to be a bit more expensive.
What are the VAT implications for international postage?
VAT on international postage depends on whether you’re sending or receiving goods.
On their website HMRC explains so long as the ‘place of supply’ is the UK, and the transport of goods is to a place outside of the UK, then the VAT on international postage items will be zero rated. Be aware that you may need to register for VAT or a similar tax in the country where you are making the supply.
This means you have to follow the tax rules of that country and pay the applicable taxes. To get specific guidance and information about the requirements, it's important to reach out to the relevant authorities in that country.
Receiving goods from outside the UK
When goods arrive from outside the UK, brace yourself for VAT charges imposed by the government. (Though gifts worth £39 or less are exempt, aside from excise goods like alcohol and tobacco which are VAT magnets!)
To settle the VAT, you have two options:
- Pay when purchasing the goods
- Let the delivery company collect the VAT
Should there be any VAT, duty, or delivery charges, expect a message from Royal Mail, Parcelforce, or the courier company. They'll send a detailed bill outlining the fees to be paid.
Postal services and EU VAT
If you're selling items to the EU from England, Scotland, or Wales, they are subject to European VAT and customs rules. You can use the Import One Stop Shop (IOSS) or the Royal Mail’s Postal Delivery Duties Paid Solution (RDDP) that cover postal services and EU VAT costs.
Under the IOSS scheme, buyers can pay VAT at the time of purchase for items worth up to €150. This means they won't have to pay VAT upon delivery. Joining the IOSS is not mandatory, but it does allow a company to streamline their VAT and tax processes when selling in the EU.
Alternatively, businesses can use the PDDP scheme. This allows Royal Mail and an overseas delivery partner to handle duties and VAT in advance so the end consumer doesn’t have to pay unexpected extras on the doorstep.
How can businesses claim VAT refunds on postage expenses?
Ultimately businesses claim all VAT refunds on postage by completing the appropriate sections on their VAT return. If the amount of VAT you’re claiming exceeds the amount of VAT you owe, then the government will pay you back the difference in the form of a VAT refund.
In practice, this looks like:
- Making sure you’re VAT registered.
- Ensuring you have valid VAT invoices for all your postage expenses.
- Keeping accurate records of your input VAT.
- Filing your VAT returns on time and including postage costs.
You’ll then receive a VAT refund that includes postage expenses if you’ve shelled out more on VAT for things you’ve had to buy as a business, versus things you’ve sold as a business.
Remember that to be eligible for a refund you must meet all the necessary VAT compliance rules and regulations. HMRC may review your VAT refund claim, and request additional documentation or information to support your claim. So it's important to maintain accurate records and be prepared to provide any relevant documentation.
How Pleo can help with VAT on postage expenses
Managing expenses, including VAT on postage, can be a challenge for lots of businesses. Here are some ways Pleo can help:
1. Receipt upload and storage: With Pleo, employees can easily upload receipts for postage expenses and store them in the app. This makes it easy to track expenses and ensure that all VAT is accounted for.
2. Expense categorisation: Pleo allows businesses to categorize expenses, including postage, by project, department or any other custom category. This makes it easy to track and allocate expenses for VAT purposes.
Try Pleo to save time, reduce errors and ensure compliance with VAT regulations today!
You might enjoy...
Most public vehicles that can seat over ten people are zero-rated, but there are some exceptions…
Don’t find yourself in hot water with HMRC!
Get the Pleo Digest
Monthly insights, inspiration and best practices for forward-thinking teams who want to make smarter spending decisions