More and more people are opting for delivery options as opposed to in-store shopping. Now more than ever, many of us lead a busy lifestyle – and delivery is the most convenient option.
If you’ve decided to go virtual or you’re running an e-commerce business, then you’re probably wondering what the surge in demand for delivery means for your business. Keep reading to learn more about VAT and VAT on delivery charges in the UK.
What Is VAT?
VAT (aka value-added tax) is a form of tax assessed at each stage of the production process. In some places, it’s known as goods and service tax – because that’s essentially what it is.
The amount of VAT will vary depending on the price of the product or service at various stages of production, distribution, or the final sale.
This consumption tax applies to any purchase of products and services, as well as various other taxable supplies.
It’s something every business should consider and can be charged on a wide variety of things that a business provides.
VAT can affect businesses in different ways – for example, charities will have different VAT rules than a restaurant would. For most businesses, taxable areas may include:
- Staff sales
- Any business assets sold
- Any business goods that are used for personal reasons
- The loan or hire of any products
- Any business sales (goods or services)
- Any exchanges
- Any earned commission
Although VAT is paid by the consumer, the business will still pay VAT to HMRC at the end of the tax year. However, the cost will have already been covered by the customers from the purchases of goods. This makes VAT an indirect tax.
Do You Pay VAT On Delivery Charges in the UK?
VAT can vary throughout the various stages of production, distribution, and sale – and there’s no black-and-white answer as to whether you pay VAT on delivery charges in the UK.
However, to figure out whether you do pay VAT on delivery charges in the UK, you need to consider which delivery service you use.
If you use Royal Mail to deliver to your customers, then you won’t actually pay VAT on the postage costs, so you won’t be able to reclaim it. This is because the Royal Mail is classed as the universal postal service provider in the UK, and is subject to price and regulatory control.
If your business uses a different courier/ delivery service, then you’ll most likely be charged VAT on your delivery charges.
In some cases regarding delivery charges, VAT liability of the goods is based on whether the item is classed as a ‘delivered good’.
When it comes to delivered goods, the delivery charge is built into the overall figure that the customer pays. When you charge for goods and delivery together, it’s classed as a single supply of delivered goods. If the cost of delivery is part of the sales price, VAT is accounted for on the value of goods.
However, if you charge for goods but not postage, then VAT is only chargeable on the goods being delivered. If it’s not in a contract that you deliver, then it won’t be classed as ‘delivered goods’ – so you’ll be required to pay VAT at the regular rate.
If you’ve been charged VAT on postage services that your business has purchased, then you can claim back the VAT as it’s a business expense.
What About Food Delivery?
When it comes to food delivery, things are slightly different. However, food deliveries are still subject to VAT in certain circumstances.
Hot takeaway meals, for example, are subject to VAT at the standard rate – and if you charge customers for delivery, then VAT will be chargeable.
However, if you deliver cold takeaway food, then it’s often zero-rated VAT. Some exceptions to the rule include crisps, drinks, and sweets – but no VAT will be chargeable on the delivery of these.
How to Work Out VAT Treatment
Working out VAT treatment in the UK is straightforward. First, determine if your goods or services are VAT taxable or exempt. If taxable, establish the correct VAT rate (standard, reduced, or zero) based on what you’re selling and its circumstances.
Identify if you need to charge VAT to your customers. On the flip side, check if you can claim back input VAT on expenses related to your business.
At LJS Accounting Services, we understand that paying VAT can be time-consuming. Likewise, we understand that understanding VAT treatment of delivery charges can be tough.