Establishing and sustaining a bustling business in the United Kingdom requires a business owner to run through multiple checklists. This is to ensure that they not only achieve their business goals and milestones effectively but also in the process do not miss out on any legal or regulatory compliance. It is interesting to note how small aspects of running a business like postage, stamps, and delivery charges can be highly significant in terms of rules and compliances. For any business, these expenses are indispensable. Now, these expenses attract VAT. Postage VAT is something that is a source of concern for a majority of businesses in the UK.

There are some rules and regulations surrounding postage VAT which are applicable under specific conditions. It is extremely important for all businesses operating within the territory of the UK to be well aware of these rules and conditions surrounding VAT on postages and stamps. So is there VAT on postage and do you, as a business owner, have to pay it? If yes how much and when – this comprehensive guide on postage VAT will answer all your queries.

What is Postage VAT?

Postage VAT refers to the Value Added Tax applied to postal services in the UK. To explain in simple words, it is the tax levied on the cost of mailing and shipping. Businesses that send mail and posts have to pay this tax. As a general guideline, the price of the goods plus the shipping fee is to be included in the total cost. Therefore, if there is VAT on the product, there will also be VAT on the related postal services.

Apart from postage, VAT applies to stamps and delivery charges as well. For a comprehensive understanding of postage VAT, it is important to know the tax applicability of stamps and delivery charges as well. This is because along with postage, these two activities are also integral parts of the emailing and shipping process.

In the following sections, we will discuss and understand the conditions based on which postage VAT, stamp and delivery charges VAT are levied.

VAT Conditions

  • VAT on Stamps - Whether bought via a store or the post office, unused stamps are free from VAT. However, the stamps must be sold for face value or less and be valid for postage to be free from VAT. 

Retailers who sell first- or second-class stamps provided by the Royal Mail for more than their face value are required to levy VAT at the standard rate on the excess. Second-hand stamps are taxed at the standard VAT rates. Note that second-hand stamps can be sold within the margin scheme. In this case, the buyer may not be aware of the margin and the seller will account for the same in his/her profit margin. 

  • VAT on Postage - The cost of the stamps and any related delivery fees are passed on to the client if they are purchased for the delivery of goods. In such a case, the postage VAT is levied on the total delivery price including the stamp cost. 

It should be noted that services under the banner of Royal Mail postage are considered “universal postage services” and hence are exempted from postage VAT. The revenue generated and remitted to universal postage services are subject to price and regulatory changes. 

However, note that Royal Mail’s parcel services are not exempted from VAT charges. For postal services, as business owners you must charge customers VAT at the appropriate rate whether you send packages using Royal Mail's parcel services or an outside courier. The rate will be the standard VAT rate. Note that as per the VAT postal legislation, if the product is exempted from VAT, the postage will also be free from the same. 

  • VAT on Delivery Charges – VAT on delivery charges is determined based on the circumstances surrounding the delivery of the goods. If the selling price of the good is inclusive of the delivery charges or there is no additional delivery fee, then VAT will be levied on the full selling price of the good. This condition holds whether or not there is any delivery as per the business contract. 

If there are additional or specific delivery charges, then the goods must be delivered to the place specified by the customer. Now, if standard-rate goods are delivered, then the VAT charges for the delivered goods will attract the standard VAT rates. If the delivered goods are zero-rated, then the applicable VAT on delivery charges will also be zero.

Rates of VAT in the UK

Parcel or postage VAT essentially reflect the VAT that is levied on the good or item that is being sent or delivered. Suppose you are sending a watch that attracts a VAT of 20% then the postage VAT will also be 20%. In another instance, if you are delivering books which are zero-rated items under VAT regulations, then the applicable parcel and postage VAT will also be zero.

The current VAT rates in the UK are as follows –

  • The standard VAT rate, which is 20%
  • Zero VAT rate, which is 0%
  • Reduced VAT rate, which is 5%

As far as exemptions are concerned, as discussed above, services under Royal Mail postage are exempt from VAT charges. To know the complete list of services under Royal Mail services that are exempted from VAT charges, visit the official site of the Royal Mail.

We Can Help You

If you are still wondering or confused about whether is there VAT on postage, if yes, what are tha applicable postage VAT rates, and how it is levied, we got you covered. At Unicorn Accounting, we pride ourselves on being your comprehensive financial partner in the UK. Beyond our core accounting and advisory services, we specialise in streamlining the intricate landscape of parcel and postage VAT. Our experts navigate the complexities of VAT on stamps, postage, and delivery charges, ensuring meticulous compliance and cost efficiency for your business. Unicorn Accounting stands ready to empower your business with strategic insights and unwavering support. Let us be your trusted ally in navigating the dynamic terrain of VAT and beyond.