Asking for advice regards VAT and travel

LouiseO · Nov 14, 2024

We are a small VAT registered company based on a UK Island.

We have customers come from the mainland to use our services and we offer the facility to book their ferry travel for them. When we purchase the tickets for non freight travel it is zero rated.

If we then charge the customer on their invoice for this travel can I resell at zero rated? We never make a profit on this, it is just charged at whatever it costs us

I've searched the VAT Notices and it is not clear. Has anyone any experience with this?

Thanks
Louisa

DWS · Nov 14, 2024

Which Island?
Do you charge UK VAT on the services you provide?

LouiseO · Nov 14, 2024

DWS said:
Which Island?
Do you charge UK VAT on the services you provide?

Hi, The Isle of Wight and yes we charge VAT on the services we provide

LouiseO · Nov 14, 2024

LouiseO said:
Hi, The Isle of Wight and yes we charge VAT on the services we provide

When charging the customer we break down the invoice into our services and then the cost of the ferry

UK Contractor Accountant · Nov 14, 2024

you are not providing ferry services ... the ferry company does that. You are recharging a cost incurred by your business to your customer so IMHO vat should be added at 20%

LouiseO · Nov 14, 2024

UK Contractor Accountant said:
you are not providing ferry services - you are recharging a cost incurred by your business to your customer so IMHO vat should be added at 20

Hi, Thank you, I did think this but because we buy in zero rated items and resell those zero rated items (crash helmets) I thought the ferry travel we purchase on the customers behalf could be treated as a product in a similar way. I buy the ticket and sell to them ?

DWS · Nov 14, 2024

I agree with UK Contractor, it’s a recharge in my opinion and so VAT at standard rate 20% should be charged.

LouiseO · Nov 14, 2024

DWS said:
I agree with UK Contractor, it’s a recharge in my opinion and so VAT at standard rate 20% should be charged.

I am confused in the fact that if I buy a first class stamp to use the post office's service, this is zero rated and when I send the item using this service and break down the invoice for the customer I show product cost plus VAT @20% and then postage cost exempt from VAT - (only on the universal postal services) otherwise I charge VAT @20% - why would the zero rated travel be different. I just don't get it !

MyAccountantOnline · Nov 14, 2024

LouiseO said:
We are a small VAT registered company based on a UK Island.

We have customers come from the mainland to use our services and we offer the facility to book their ferry travel for them. When we purchase the tickets for non freight travel it is zero rated.

If we then charge the customer on their invoice for this travel can I resell at zero rated? We never make a profit on this, it is just charged at whatever it costs us

I've searched the VAT Notices and it is not clear. Has anyone any experience with this?

Thanks
Louisa

Have you looked at whether the costs may be treated as disbursements?

Have a read here https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers

UK Contractor Accountant · Nov 14, 2024

VAT is not a logical tax! one of the most complicated taxes in the taxation system.

The vat charge on postage follows the vat status of the main supply -If your supply is standard rated, you must charge VAT on the recharge. If it's zero-rated or exempt, the recharge follows the same VAT treatment.

DWS · Nov 14, 2024

LouiseO said:
I am confused in the fact that if I buy a first class stamp to use the post office's service, this is zero rated and when I send the item using this service and break down the invoice for the customer I show product cost plus VAT @20% and then postage cost exempt from VAT - (only on the universal postal services) otherwise I charge VAT @20% - why would the zero rated travel be different. I just don't get it !

I don’t believe it is different you should also be charging VAT on the postage.

MyAccountantOnline · Nov 14, 2024

LouiseO said:
I am confused in the fact that if I buy a first class stamp to use the post office's service, this is zero rated and when I send the item using this service and break down the invoice for the customer I show product cost plus VAT @20% and then postage cost exempt from VAT - (only on the universal postal services) otherwise I charge VAT @20% - why would the zero rated travel be different. I just don't get it !

Why have you zero rated the postage you charge?

LouiseO · Nov 14, 2024

VAT and the method of delivery

You have a number of different options for delivering products to customers. These include:

Using Royal Mail postal services
Using Royal Mail parcel services
Using independent parcel or courier services.

Royal Mail postal services

If you use Royal Mail postal services, you do not charge VAT on postage, even though you may charge customers for the cost of postage. This is because Royal Mail postal services are considered ‘universal postage services’ and are exempt from VAT.

While you cannot charge customers VAT on this method of delivery, you cannot claim back any VAT on the cost of the Royal Mail service.

found this online a while ago from accountsandlegal website regards vat and postage
when looking

LouiseO · Nov 14, 2024

LouiseO said:
VAT and the method of delivery
You have a number of different options for delivering products to customers. These include:

Using Royal Mail postal services

Using Royal Mail parcel services

Using independent parcel or courier services.

Royal Mail postal services
If you use Royal Mail postal services, you do not charge VAT on postage, even though you may charge customers for the cost of postage. This is because Royal Mail postal services are considered ‘universal postage services’ and are exempt from VAT.

While you cannot charge customers VAT on this method of delivery, you cannot claim back any VAT on the cost of the Royal Mail service.

found this online a while ago from accountsandlegal website regards vat and postage
when looking

I may have interpreted it incorrectly though

MyAccountantOnline · Nov 14, 2024

LouiseO said:
I may have interpreted it incorrectly though

If you dont have an accountant to ask for advice it's best to refer to HMRC's guides.

Have a read of section 2.20 in notice 70024 here https://www.gov.uk/guidance/vat-on-...direct-marketing-notice-70024#delivered-goods

Unfortunately you've got some back-dated underpaid VAT to pay.

LouiseO · Nov 14, 2024

UK Contractor Accountant said:
VAT is not a logical tax! one of the most complicated taxes in the taxation system.

The vat charge on postage follows the vat status of the main supply -If your supply is standard rated, you must charge VAT on the recharge. If it's zero-rated or exempt, the recharge follows the same VAT treatment.

so a first and 2nd class stamp is exempt from VAT so I have not been charging VAT. Is this in your opinion correct?

Ziggy2024 · Nov 14, 2024

LouiseO said:
so a first and 2nd class stamp is exempt from VAT so I have not been charging VAT. Is this in your opinion correct?

No it isn't. You should be charging VAT on the postage.

However, the original question of the ferry trip cost could, depending on how it is booked, be a disbursement (no vat would be charged on this) or a recharge (vat would be charged). To determine this you need to check the link provided by myaccountantonline.

David Griffiths · Nov 14, 2024

Dealing first with the issue of postage. You do not necessarily charge VAT on the postage - the VAT rate on the carriage is the same as on the item being sold. So if you sell a standard rate product, then the carriage is standard rated. If you sell a zero rated product, then the carriage is zero rated. And if the sale is a mix of standard and zero then you would charge VAT on the appropriate percentage of the sale. IF that produces a skewed result (for example the zero rated item is cheap but heavy and the SR item is small but costly, then you might be able to approach HMRC to agree a different way of apportionment. Or it might be cheaper to send two separate packages!

For the ferry fare, some of the examples given above are not particularly relevant (I might not have read all of them) The situation is often quoted where you book a journey for yourself and pass the cost on to the customer. That is cerainly standard rated, even if the cost to you wasn't subject to VAT.

However in your case you are purchasing a ticket for the customer, and presumably it is the customer's name on that ticket. In that case I believe that you are making a disbursement on the customer's behalf and can zero rate the recharge. The link given will tell you when you can treat a payment as a disbursement, and having the customer's name on the booking is going to be important.

Bobbo · Nov 15, 2024

David Griffiths said:
In that case I believe that you are making a disbursement on the customer's behalf and can zero rate the recharge.

Getting deja vu from the last time I commented about VAT on this forum.

If it genuinely is a disbursement then you are not zero rating the recharge, rather it is Outside of the Scope of VAT!

Sami Majoka · Nov 17, 2024

Hi Louisa,

This is a great question, and you're right that the VAT guidance can feel a little unclear in situations like this. Based on my experience, here’s how this works:

If you’re purchasing the ferry tickets as an agent on behalf of your customer, and you charge them the exact cost (without markup), this is generally treated as a disbursement for VAT purposes. In this case, you can pass on the cost to your customer at zero VAT, as it reflects the same treatment as when you purchased it.

To qualify as a disbursement:

You must act as an agent for the customer when buying the ticket.
The cost must be separately itemized on the customer’s invoice as a ferry ticket.
You should not include the ticket cost in your VATable turnover or claim VAT on it.

However, if you’re reselling the tickets as part of your own supply (not a disbursement), VAT may apply depending on your overall service. Since you’re not making a profit and charging the exact amount, treating it as a disbursement seems the best approach.

It’s worth confirming with HMRC or your accountant to ensure compliance, but this should help clarify your position. Hope this helps!

Ziggy2024 · Nov 18, 2024

Just to be clear on this, you can't choose to treat something as a disbursement. It either is or it isn't.

If, for example, you have an account with the ferry company then this isn't a disbursement regardless of whose name is on the ticket.

You need to work through the facts of the contract to determine the treatment of the cost.

LouiseO · Nov 18, 2024

Ziggy2024 said:
Just to be clear on this, you can't choose to treat something as a disbursement. It either is or it isn't.

If, for example, you have an account with the ferry company then this isn't a disbursement regardless of whose name is on the ticket.

You need to work through the facts of the contract to determine the treatment of the cost.

Oh my , this is so confusing

thank you for advice

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