We are sure you have better things to do than try and understand the complexities of the UK tax system. So, if you have ever been left scratching your head about VAT on postage and deliveries, this guide will explain all you need to know in the most simplistic terms.
There is no VAT on some Royal Mail postage services. For example, you will not pay VAT on postage stamps as they’re exempt from VAT. However, some postage services including Royal Mail, you will pay VAT on, others can be zero-rated, or even standard-rated depending on the type of service being provided and consumed.
We appreciate that’s not entirely clear yet, and it’s because VAT will be applied differently depending on the postage service and supplier.
For example, Royal Mail 1st and 2nd Class stamps tend to be exempt from VAT but there are exceptions, even within the set of Royal Mail postal services.
Don’t worry though, as we’ve outlined the various scenarios below so you can better understand when you pay VAT on postage, whether it’s VAT exempt or zero-rated, and how you can claim money back on business expenses.
How VAT on postage works
Not claiming VAT on business expenses such as postage can impact the cash you have in your business and the amount of money you have available to pay yourself through profits.
Consider this simple example of claiming missed VAT:
- Purchases in the year: £12,000
- VAT: £2,000
- Cost to business: £10,000
- Additional Cash: £2,000
- Additional Profit: £2,000
Getting this wrong can add up to a sizeable amount of money across the financial year. It is always best to double-check receipts (always keep them) and invoices for evidence of VAT applied to postage.
However, it isn’t always easy as there are many exceptions to the rules when it comes to VAT on postage, and how it is displayed on receipts and invoices on delivery charges.
Do you pay VAT on postage?
Yes, you do pay VAT on some postage. Postal services provided by the Royal Mail Group Limited under its remit as the universal postal service provider in the UK are exempt from VAT if they are subject to price and regulatory control.
This exemption does not extend to similar services provided by the Royal Mail or other suppliers. Check out ‘is there VAT on Royal Mail postage’ guidance below.
When considering the VAT liability of delivery charges, you will need to consider whether delivery is included in the contract with your supplier. If it is, they are making a single supply of delivered goods or services.
The liability of the delivery or postage and packing charge follows that of the items being delivered, this is standard rated in the case of most supplies but zero rated in the case of zero rated supplies such as children’s clothes and footwear, water, basic foods, books and newspapers or exempt in the case of valid postage stamps.
If you have purchased postage services, then you will need to check your receipt or invoice to identify what VAT you have paid and therefore what VAT you will be able to reclaim if you are VAT registered.
You may find that there are multiple VAT rates applied to your purchases if you have bought different services. When posting the costs into your bookkeeping software make sure you enter the details to match your purchase, so you reclaim the correct amount of VAT.
Do not confuse Postage VAT being exempt with zero-rated.
Whilst they both may attract a £0 VAT charge, they are different (here’s how). When entering your postage purchases into your accounting records make sure to use the exempt option instead of zero-rated.
Is there VAT on Royal Mail postage?
Postal services provided by the Royal Mail Group Limited under its remit as the universal postal service provider in the UK are exempt from VAT if they’re subject to price and regulatory control.
This means that universal services such as 1st and 2nd class postage stamps are VAT exempt. There is no VAT to reclaim on these purchases so use the exempt purchases tax rate when posting into your bookkeeping software.
This exemption does not extend to similar services provided by the Royal Mail or other suppliers. We have listed examples for Royal Mail below.
A list of other products provided where there is no VAT on Royal Mail postage are the following VAT exempt services below:
- Special Delivery Guaranteed (stamps and franking).
- Royal Mail Signed For (if purchased with a VAT-exempt service this will become liable to VAT if purchased as an add-on to a standard rated service).
- Keepsafe (personal and business).
- International Standard.
- International Economy.
- International Signed and International Tracked & Signed.
- All HM Forces Mail.
- Redirections within UK (personal and business).
The following international Royal Mail postage services are zero-rated:
- International Business Tracking and Signature services (International Business Tracked & Signed, International Business Signed and International Business Tracked).
- International Business Services (International Business Mail, International Business Parcels) and where a price is worldwide then VAT will apply to all destinations.
- International Business Mail Response and International Parcel Returns and where a price is worldwide then VAT will apply to all destinations).
- International Tracked.
- International Redirections.
When considering VAT on Royal Mail postage, do not confuse exempt with zero-rated.
Whilst they both may attract a £0 VAT charge, they are different. When entering your postage purchases into your accounting records make sure to use the exempt option instead of zero-rated.
All other Royal Mail postage services are liable to VAT. For a full list of those services check out the Royal Mail products liable to VAT.
Is there VAT on postage stamps?
No, there is no VAT on postage stamps in the UK. Valid UK and Isle of Man stamps are the payment for a postal service that is exempt from VAT.
Valid postage stamps are unused stamps of the present monarch’s reign on which the value is:
- Displayed as being £1 or a multiple of £1.
- Displayed in decimal currency.
- Designated for first- or second-class postage.
This means that if you purchase stamps at the face value of the stamp then there would be no VAT on the postage stamps as they are exempt from VAT. You should not reclaim VAT on the purchase in your accounts i.e., you should use the VAT account code for exempt VAT purchases.
If you purchase stamps above the face value and the seller is VAT registered, they should charge you VAT at the standard rate of VAT. You will need to check the receipt to see if there is any VAT at the standard rate.
If there is, then you will be able to reclaim this on your VAT return by using the standard rate VAT tax rate in your bookkeeping software.
All used stamps are taxable at the standard rate.
All foreign stamps, even if they are valid for postage abroad, are taxable at the standard rate.
Do you charge VAT on postage to customers?
Whether you charge VAT on postage to customers depends on a few key criteria. As you may have realised by now nothing is ever a straightforward answer when it comes to taxes in the UK.
Below we describe the different situations in which you charge VAT on postage to customers.
When considering the VAT liability of delivery charges to customers, you will need to consider whether delivery is included in the contract with your customer.
If it is, you’re making a single supply of delivered goods or services (in the case of valid postage stamps).
The liability of the delivery or postage and packing charge follows that of the items being delivered, that is standard rated in the case of supplies or exempt in the case of valid postage stamps.
You can find full guidance about this in Postage, delivery and direct marketing (VAT Notice 700/24).
Do you charge VAT on delivery charges?
Where goods are delivered to a customer and the price includes an amount for this service this is a supply of delivered goods. The way any delivery charge is treated for VAT purposes depends on the circumstances in which the goods are supplied.
| If | then |
| I deliver goods to my customers but make no additional charge. | If delivery is free, or the cost is built into the normal sales price, VAT is accounted for on the value of the goods based on the liability of the goods themselves.This applies whether or not delivery is required under the contract. |
| I supply goods on approval and make an additional charge for delivering the goods. | At the point of delivery no supply of goods has taken place and the delivery of the goods may not result in any supply of those goods. The service provided is not one of delivered goods. The delivery service is a separate supply to enable the customer to view the goods prior to making a decision as to whether or not to purchase them. |
| I deliver goods to my customer and make an additional charge. | An additional charge for delivery will follow the liability of the goods. The important test is whether delivery is included in the contract. You’re making a single supply of delivered goods if, under the contract, you must deliver the goods to a place specified by the customer. This might include the customer’s: Own address.Friends or relatives.Own customers. The position is not affected by whether the charge for delivery is separately itemised or invoiced to the customer. In either case there is a single supply of delivered goods for which the VAT liability is based on the liability of those goods. |
| Delivery is not required under the contract or I deliver somebody else’s goods. | A delivery service is treated as a supply which is separate to that of the goods. The service provided is not one of delivered goods. This applies where you: Supply goods under a contract that does not require delivery but where, nevertheless, you agree to deliver the goods and make a separate chargeyou provide a service of delivering somebody else’s goods. In these cases, the liability of the delivery charge is not affected by the liability of the goods you’re delivering and is always standard rated even if the goods are not. |
| I make a separate charge for packing. | A separate packing service for which a charge is made will be standard-rated within the UK. |
| I am a retailer using a retail scheme. | If you’re involved in the supply of either delivered goods or you charge for delivery, accounting for the charge will depend on the type of scheme used. For each scheme you should follow the guidance in the relevant notice: VAT Notice 727/3 retail schemes: how to work the point of sale scheme VAT Notice 727/4 retail schemes: how to work the apportionment scheme VAT Notice 727/5 retail schemes: how to work the Direct Calculations schemes |
Should you charge VAT on postage stamps?
If you sell unused UK or Isle of Man stamps that are valid for postage no VAT is chargeable if you sell them at or below face value. But you must account for VAT at the standard rate on any amount the price you charge exceeds their face value.
If you sell stamped stationery that is unused and valid for postage in the UK or Isle of Man, you should account for VAT at the standard rate on the amount you charge less the face value of the stamps.
This applies whether the stamps are printed on the stationery or are ordinary postage stamps that have been stuck on.
Is there VAT on international shipping?
If you deliver somebody else’s goods within the UK, including mail and documents, you’re making a supply of freight transport services.
You will need to check out VAT Notice 744B:freight transport and associated services for guidance on how these supplies should be treated.
If you transport goods from a place outside the UK you may also want to consider the information in Import VAT on parcels you sell to UK buyers (VAT notice 1003). This explains how overseas suppliers can pay import VAT on goods they sell and send to UK buyers.
If you transport goods to or from a place outside the UK, you’re making a supply of international freight transport services.
You’ll find further information on how these supplies should be treated for VAT purposes in VAT Notice 744B: freight transport and associated services.
Is postage VAT zero rated or exempt?
As we have outlined throughout this article whether postage VAT is zero-rated, exempt or even standard-rated depends on the type of service being provided and where that service is being provided.
If you have purchased postage services, then you will need to check your receipt or invoice to identify what VAT you have paid and therefore what VAT you will be able to reclaim if you are VAT registered.
You may find that there are multiple VAT rates applied to your purchases if you have bought different services. When posting the costs into your bookkeeping software make sure you enter the details to match your purchase, so you reclaim the correct amount of VAT.
Do not confuse exempt with zero-rated. Whilst they both may attract a £0 VAT charge, they are different. When entering your postage purchases into your accounting records make sure to use the exempt option instead of zero-rated.
If you wish to know whether you should be charging VAT to customers check out the section above on do you charge VAT to customers?
Is there VAT on delivery charges?
Where goods are delivered to a customer and the price includes an amount for this service this is a supply of delivered goods. The way any delivery charge is treated for VAT purposes depends on the circumstances in which the goods are supplied.
If the goods are delivered but no additional is made then delivery is free, or the cost is built into the normal sales price, VAT is accounted for based on the liability to VAT of the goods themselves.
If the goods are delivered and an additional charge is made for delivering the goods, the VAT on delivery charge will follow the liability of the goods.
The important test is whether delivery is included in the contract. You’re making a single supply of delivered goods if, under the contract, you must deliver the goods to a place specified by the customer.
The position is not affected by whether the charge for delivery is separately itemised or invoiced to the customer. In either case there is a single supply of delivered goods for which the VAT liability is based on the liability of those goods.
Should I charge VAT on postage and packaging?
Whether you should charge VAT on postage and packaging will depend on the contractual arrangement you have with your customer.
If you supply a separate packing service in connection with a movement of goods depending on the contractual terms with your customer, you will probably be making a supply of an ancillary transport service.
You can find further information on this in VAT Notice 744B: freight transport and associated services.
To determine whether you should charge VAT on postage and packing check out the table above in the ‘do you charge VAT to customers’ section.
Further FAQs on VAT on postage and packing
Can I claim back VAT on postage?
Yes, you can claim back VAT on postage. If you are VAT registered and have a valid a receipt or invoice as proof of purchase for the services provided. As we have identified above postage could attract VAT at three different rates.
If you have purchased postage services, then you will need to check your receipt or invoice to identify what VAT you have paid and therefore what VAT you will be able to reclaim if you are VAT registered.
You may find that there are multiple VAT rates applied to your purchases if you have bought different services. When posting the costs into your bookkeeping software make sure you enter the details to match your purchase, so you reclaim the correct amount of VAT.
Do not confuse exempt with zero-rated.
Whilst they both may attract a £0 VAT charge, they are different. When entering your postage purchases into your accounting records make sure to use the exempt option instead of zero-rated.
Is there VAT on parcels?
Whether there is VAT on parcels depends on who is providing the service the type of service provided and the destination of the parcel.
Postal services provided by the Royal Mail Group Limited under its remit as the universal postal service provider in the UK are exempt from VAT if they are subject to price and regulatory control. This exemption does not extend to similar services provided by the Royal Mail or other suppliers.
All other Royal Mail services are liable to VAT. For a full list of those services check out the Royal Mail products liable to VAT.
Check any documentation you have received from the provider to see if there is any VAT you can reclaim. If you are distributing parcels and want to know whether you should be charging customers VAT on parcels, then check out the table above in the ‘do you charge VAT to customers’ section.
Are postage charges exempt from VAT?
Royal Mail 1st and 2nd Class stamps tend to be exempt from VAT but there are exceptions, even within the set of Royal Mail postal services.
Postal services provided by the Royal Mail Group Limited under its remit as the universal postal service provider in the UK are exempt from VAT if they are subject to price and regulatory control.
This exemption does not extend to similar services provided by the Royal Mail or other suppliers. Throughout this guide on whether there is VAT on postage, we have provided information on whether postage charges are exempt from VAT.
The answer lies in the type of service being provided, by whom and from where.
Conclusion
With a standard VAT rate of 20% in the UK you could be losing out on valuable cash and profit in your business if you do not reclaim VAT on postage and other expenses where possible.
It’s not always obvious when you can claim VAT on postage costs.
In 2009 it was reported that the UK tax code had exceeded that of India and, at 11,520 pages was the longest in the world.
If you are buying 1st and 2nd Class stamps from the Royal Mail the supply is tax exempt. For all other types of supply in relation to postage, packaging, and delivery the rules vary.
Reclaiming VAT on purchases is simple as you will follow the documentation you have received in the form of a receipt or invoice. You reclaim the amount of VAT the supplier has calculated as that is what they have paid to HMRC.
When deciding what VAT to charge on postage costs when supplied to customers it becomes more complex. You need to get this right as you could be liable for any VAT you should charge on postage which you fail to do incorrectly.
You could even face penalties and fines on top of any VAT that should have been paid to HMRC. If you are unsure, we would highly recommend checking with a professional such as an accountant or bookkeeper.
There are exceptions to the rules as always when it comes to HMRC.
It is always worth double-checking to avoid falling foul of an exception to the rule. You cannot rely on a standard way of claiming VAT on postage which differs depending on the way the supply is provided.
One size does not fit all.
More small business owner advice…
- How VAT works on bus tickets
- How VAT works on the London congestion charge
- Understanding how VAT on import duty works
Image of post box in header via https://pixabay.com/photos/post-box-wall-vintage-stone-post-6737611/
Jon has been in business since 1999, and in that time worked with more than 300 small business clients. As well as being an accountant, he is also an early adopter of tech, and has helped small businesses to leverage the power of their computer systems by creating software to automate and simplify accounting tasks.
