If you have an eCommerce store and deliver goods online in the United Kingdom, you might have come across VAT on shipping. Many business owners with online stores suffered this problem during the pandemic as their business skyrocketed and they were worried about the rules of VAT on their shipping.
However, every country drew their own rules and regulations regarding the charges on shipping, the UK enacted some specific rules about the chargeable shipping on the delivered products. This created trouble for many businesses and this is why we are going to guide you on the VAT on shipping and when you are liable to pay these delivery charges and at what rates. Moreover, we will discuss which items are exempted from these charges. So, let’s discuss all these key points!
VAT on Shipping and Delivery Charges
VAT (Value Added Tax) is a type of tax added at each manufacturing stage until the final stage. VAT is applicable on all products providing or delivering services. As a normal or standard rule, the VAT is not applicable on postage stamps.
However, when businesses deliver goods online to their customers, they are counted as a service to the customer. So, they have to pay VAT on the total price of shipped goods. So, this is the reason that VAT-registered businesses with total revenue of more than 85000 have to pay VAT.
Although the standard rates of VAT are 20%, a reduced rate of 5% and a zero rate tax, the procedure for calculating tax for shipping is a little bit confusing. We will try to understand this concept with the help of an example.
Suppose, you order two products like socks and books costing £ 60.00 and £ 15.00. The socks are VATable at a rate of 20% and the books are VAT-free in the United Kingdom. So, the first 75% of the shipping cost (75% of the £ 6.00, £4.5) would be charged at a standard rate of 20% and the remaining 25% of the shipping cost of £ 6.00, £1.50 would be charged at a zero rate.
In other words, the VAT status of the delivered goods determines the VAT on shipping. The goods with 20% VAT will have a VAT of 20% on their shipping. Similarly, goods with a reduced rate of 5% or zero rate VAT will make the shipping VAT at the reduced rate of 5% and Zero rate respectively.
HMRC Rules for VAT on Delivery Charges
The HMRC has clearly instructed on the VAT charges applicable on the delivered products. For example:
- No charge for delivery. If you deliver goods without any shipping costs, or the cost is included in the normal sales price, the liability of the goods will determine the value and thus VAT of the delivered goods. And this applies whether or not delivery is required under the contract.
- Goods on approval: Goods delivered on approval are not classified as delivered goods. In this case, the delivery service will be charged as a separate VATable supply.
- Additional charge for delivery. Additional charge for delivery is counted as a single supply of delivered goods. For this, the VAT for delivering goods is determined by the applicable VAT on the goods.
- Delivery is not required. Let’s suppose the delivery of goods was not a part of the contract. Therefore, the VAT will be charged at the standard rates. However, it applies when the delivery is within the United Kingdom.
- A separate charge for packing. If you pack the delivered goods and charge for them, then the standard of VAT will apply to them.
- Food deliveries. Food deliveries also require the VAT on deliveries to be associated with the standard VAT rates on the food products.
The rules will be different for delivering goods outside the United Kingdom or if another business is delivering goods and services to the United Kingdom. You can take professional help to understand the complex VAT procedures if you are managing VATable products having multiple rates.
Exemption From VAT on Shipping
There are two ways to get an exemption from Value Added Tax (VAT). One is the way you deliver goods using the services of Royal Mail Group Limited. This is because they are treated as the universal postal service provider in the UK and are under the British government’s regulatory and price control.
On the other hand, if you have bought stamps and did not use them for delivering goods, it means these postage stamps are not VATable. In other words, the unused stamps are not counted as VATable by the HMRC.
Can I Reclaim VAT on Shipping
Yes, you can reclaim or refund VAT on shipping if you have bought postage services as it will be counted as business expenses. So, you can deduct the VAT from your taxes. On the other hand, if you have not paid VAT on your products, you cannot reclaim VAT on shipping costs.
The Bottom Line
The conclusion is postage stamps are themselves VAT free, but the delivery of goods is a service. So, a VAT will be deducted from the shipping costs by the HMRC. The standard-rate VAT goods will have a VAT of standard rates on the shipping costs as we have explained with the help of an example.
Similarly, we have explained the HMRC rules regarding the delivery of the goods and the VAT applicable to them. VAT on shipping is confusing at times and you can take the help of a professional for a more accurate and bespoke solution for your business.
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Disclaimer: All the information provided in this article on Understanding VAT on Delivery Charges in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.