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Do I have to charge VAT on postage?

Discussion in 'General Business Forum' started by Verip, Sep 18, 2009.

  1. Verip

    Verip UKBF Newcomer Free Member

    Posts: 28 Likes: 0
    Hello again, I am sorry to be a pain but there are few things I don't quite understand about Vat. I just registered this month as will be exporting goods to EU countries and I quite understand how to go about Vat in this area as it is 0% within European Countires. My problem is how to invoice people here in the UK. I sell on ebay and trying to develop my own website to sell through. Now, do I put Vat on the top of my postage cost? What I mean is for example, someone buys something for £2.99 on ebay plus they pay £1.99 postage, so they pay total £4.98. How do I go about the invoice? Do I put £2.60 + £0.39 vat plus £1.99 postage? Or should I put £4.34 + £0.64 vat?

    When I pay at the post office they obviously dont charge me vat so I can't claim it back. If I have to pay vat from the postage then I would have to pay more money on vat return.

    I am really new to this and I do appreciate your help guys. Thank you very much. :)
  2. consultant

    consultant UKBF Regular Moderator

    Posts: 3,999 Likes: 498
    The usual issue of VAT isnt straightforward applies!

    In basic terms, if the goods are VATable, so is the postage!
  3. Kasey1

    Kasey1 UKBF Newcomer Free Member

    Posts: 2 Likes: 0
    Yes ,i agree with you .
  4. davezzr

    davezzr UKBF Regular Free Member

    Posts: 610 Likes: 75
    You charge vat on goods and postage irrelevant of the country you are posting/shipping to except on goods with zero rating for vat but will still charge vat on postage.
    Charge vat at our rate irrespective of the countries local rate you are sending to
  5. Verip

    Verip UKBF Newcomer Free Member

    Posts: 28 Likes: 0
    Thanks very much guys for your replies. I thought I would have to charge vat on the postage but it means more money to the vat people!!!!

    How is it that we have to charge vat for postage but we cannot claim it back when we pay postage at the post office????

    Can I go around it and not include vat in my postage rate? Surely if postage vat is 0% there is way of doing it. As you can see I am not an expert but don't want to pay too much money to vat people if i don't have to.

  6. davezzr

    davezzr UKBF Regular Free Member

    Posts: 610 Likes: 75
    How is it that we have to charge vat for postage but we cannot claim it back when we pay postage at the post office????

    You claim your postage as business expenses with is deductable :)
  7. Verip

    Verip UKBF Newcomer Free Member

    Posts: 28 Likes: 0
    I know I can put it as a business expense but why do I have to pay vat from it? What I understand is I buy something for £1.73 plus £0.26 =£1.99 vat and I sell it for £3.47 plus £0.52 vat =£3.99

    Now, I claim £0.26 back form the vat man and pay them £0.52 which I actually pay at the end £0.26.

    How can I pay vat from the postage if for example I send a parcel that cost at the post office £2.99. I charged the buyer £2.99. I cant claim the vat back from the postage because there is not one. Postage is 0% vat. So how comes I need to pay additional £0.39 vat from the postage and not being able to claim any back.

    Am I just stupid or what?
  8. Milan Vasilko

    Milan Vasilko UKBF Newcomer Free Member

    Posts: 81 Likes: 16

    Think of it this way - the PRICE of postage you charge your customers does not need to be the same as your COST of posting the item. In fact, it should not be, as you have additional expense of paying for packaging material, the time it takes to pack&post the item and other associated admin costs.

    With this in mind, you should treat the postage PRICE you charge separate from the COST you pay.

    The accounting then looks something like this:

    Your cost of postage: £1 + 0% VAT = £1
    Your cost of packing (material): £1 + 15% VAT = £1.15
    Your cost of packing (labour): £1 (no VAT) = £1
    Your cost of postage & packing total: £3.15 (inc.VAT)

    You will deduct £3.00 as your business expense.
    You will claim £0.15 in VAT you've paid from the VAT man.
    You had to pay this VAT first, but you will get this back so your real business cost is only £3.00.

    The postage price you charge your customer: £4 + 15% VAT = £4.60 (inc.VAT)
    You will pay £0.60 of VAT collected over to the VAT man.
    You make a gross profit on the postage of (price you charge ex.VAT - your cost ex.VAT): £4-£3 = £1

    So in the end the VAT man gets:
    (VAT you have collected - VAT you were charged): £0.60-£0.15 = £0.45

    You are not out of pocket as this is just re-balancing the VAT receipts and expenses. Usually your VAT receipts are larger than VAT expenses so usually you end up paying the difference to the VAT man, rather than receiving a VAT refund.

    If you are selling mostly to the EU and have to charge 0% VAT, then you are more likely to receive a VAT refund as your VAT receipts might be lower than your VAT expenses. Either way, you are not out of pocket, but this will have some cash-flow implications on your business.


    Of course, you could decide on different way how you handle postage price you charge to your customers (e.g. aim not to make any profit on postage, offer free postage = include your postage costs in the product price and/or other business costs, allow for collection, have fixed price for the entire EU, 2-3 postage bands, etc.) and this will have impact on the amount of VAT you collect for postage and the profit you make on postage.

    Whatever postage pricing mechanism you use for your customers, it will make no difference to your COST of postage and how you account for its associated VAT.

    I hope this helps,
    Last edited: Sep 19, 2009
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  9. KidsBeeHappy

    KidsBeeHappy UKBF Regular Full Member

    Posts: 7,358 Likes: 1,580
    Don't get caught here. Sales to EU are only 0% if you're selling to an EU vat registered business. If you're selling to a customer, or a non vat registered business, or even if the business can't supply you with the VAT number, then it's fully vatable at the normal rate.

    If you're selling on ebay, then you are probably selling to customers. SO, it's full VAT as normal. And yes, that includes the postage and packaging element.

    Look at it this way, the post office don't charge you VAT so you don't need to pay it on your purchases. If it was another courier you'd be charged £1.99 plus vat (and granted you could claim the VAT back, but you'd still have to pay it in the first place).

    And remember to always keep it in your head, it isn't you that pays the VAT it's your customers, 15%/17.5% or the money that you take isn't your's its the government's tax. You are an unpaid tax collector.

    You are then allowed to recover the VAT on the expenses incurred making/selling that product.
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  10. KidsBeeHappy

    KidsBeeHappy UKBF Regular Full Member

    Posts: 7,358 Likes: 1,580
    Because you DON'T pay it on postage at the post office. If you haven't paid it, you can't get stroppy about not being able to claim it back.

    There is no VAT on Royal Mail or Parcelforce services.

    Customs take the view that in very very few instances is P&P actually the face value of the stamps, and P&P is actually the price that you charge for the service of packaging and sending your sales to your customers. You can charge face value of stamps, a fixed fee, a sum that you have equated to the time/materials/courier costs, or a great big fat fee as many ebayers do in the drive to reduce fees, or you can give it to your customer free. All in all, whatever you do, exactly the same amount of VAT is payable in all instances. Maybe it's not that unfair after all.
    Last edited: Sep 19, 2009
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