Is there VAT on postage?

It depends who is providing it. Postal services provided by Royal Mail Group Limited under its remit as the universal postal service provider are exempt from VAT, but only where those services are subject to price and regulatory control. Section 1.3 of VAT Notice 700/24 is explicit that the exemption does not extend to similar services provided by Royal Mail outside that remit, or by any other supplier. So an ordinary stamped letter is exempt while a courier delivering the same envelope is making a standard-rated supply.

Is there VAT on stamps?

No. Buying unused postage stamps is not subject to VAT, so there is no input tax in them and nothing to reclaim. That is the straightforward half. The half that catches people is what happens next: where a delivery charge to your own customers includes the cost of those stamps, you may well have to charge VAT on the whole amount even though you bought the stamps free of it. The stamps being VAT-free says nothing about the charge you make.

Do I charge VAT on delivery charges?

Usually you charge whatever the goods carry. Where the contract requires you to deliver to a place the customer specifies, section 2.2 of VAT Notice 700/24 treats it as a single supply of delivered goods, so the delivery follows the liability of the goods even where it is itemised separately on the invoice. Zero-rated goods carry zero-rated delivery. Standard-rated goods carry standard-rated delivery. Where delivery is not required under the contract, or you are delivering somebody else's goods, it is a separate supply and is always standard-rated whatever the goods are.

Is there VAT on delivery of zero-rated goods?

Not where it forms part of a single supply of delivered goods. This is the most expensive misunderstanding in the area and it runs in the direction nobody checks, because the business is overpaying rather than underpaying. A retailer selling children's clothing or printed books, both zero-rated, who contracts to deliver to the customer's address, should be zero-rating the delivery charge too. Charging 20 per cent on it hands HMRC output tax that was never due, and no inspection will ever flag it.

Is there VAT on packing charges?

A separate charge for packing is standard-rated within the United Kingdom. So an invoice that itemises goods, delivery and packing can quite properly carry two different treatments on three lines: the goods at their own rate, the delivery following those goods where it is part of a single supply of delivered goods, and the packing at 20 per cent regardless. It is worth checking how your own invoice template splits these, because the template is usually where the error lives rather than the person keying it.

VAT on Postage, Stamps and Delivery Charges

Q: Can postage be treated as a disbursement?

Rarely, and only on strict conditions. Paragraph 3.4 of VAT Notice 700/24 allows a supplier of printed matter to treat mail charges made by mail operators as a disbursement, provided the supplier meets the general disbursement requirements in VAT Notice 700, ceases to be responsible for the mail once the mail company accepts it for safe delivery, and passes on any discount or rebate from the mail company to clients in full and shares it fairly. Outside that specific route, calling a delivery charge a disbursement does not make it one.

Royal Mail's universal service is exempt — but only where it is subject to price and regulatory control. Anything else, including Royal Mail's own commercial services and every courier, is standard-rated. Stamps carry no VAT when you buy them. But the delivery charge you make to a customer is part of a single supply of delivered goods, so it follows the liability of the goods — zero-rated goods, zero-rated delivery; standard-rated goods, 20% on the postage too, however you bought it.

Send me one sales invoice showing goods, delivery and packing as separate lines. I will tell you whether each line is on the right rate. If you sell zero-rated goods online there is a decent chance you have been paying HMRC output tax that was never due - and nobody ever audits a business for overpaying. Free, back to you within one working day, and nothing follows unless you ask for it. Send me an invoice.

Buying postage

Section 1.3 of VAT Notice 700/24 exempts postal services provided by Royal Mail Group Limited under its remit as the universal postal service provider, where those services are subject to price and regulatory control. The notice then says plainly that the exemption "does not extend to similar services provided by the Royal Mail or other suppliers".

That sentence does more work than it looks. The exemption attaches to a regulated service, not to a company and not to the act of posting something.

What you buy	Treatment	Reclaim?
Unused postage stamps	Not subject to VAT	No — there is none
Royal Mail universal service under price and regulatory control	Exempt	No
Royal Mail services outside that remit	Not exempt	Yes, on the VAT shown
Couriers and other delivery suppliers	Not exempt	Yes, on the VAT shown
Separate packing charge, within the UK	Standard-rated	Yes

Exempt is not outside the scope, and neither is nothing. Stamps bought at face value are not consideration for a taxable supply; an exempt Royal Mail service is. Those sit in different places on the return, in the same way bank charges do. The codes to use are set out for Xero and for Sage.

Selling postage, which is the part that costs money

Nothing about how you bought the postage carries over to what you charge for it. Section 2.2 of the notice splits it two ways.

Part of a single supply of delivered goods

Where delivery is free, built into the normal selling price, or required under the contract to a place the customer specifies, you are making one supply of delivered goods. VAT follows the liability of the goods — and the notice is explicit that this holds even where the delivery is itemised separately on the invoice. Splitting it onto its own line changes the presentation, not the analysis.

A separate supply

Where delivery is not required under the contract, or you are delivering someone else's goods, it is a separate supply of delivery services. That is always standard-rated, whatever the goods are. Goods supplied on approval with a delivery charge fall here too.

The arithmetic, in both directions

Take a £4.95 delivery charge and 2,000 orders a year.

	Standard-rated goods	Zero-rated goods
Correct treatment of delivery	20%	Zero-rated
VAT in £4.95 if charged at 20%	£0.825	£0.825
If you get it wrong	Under-declared £0.825 an order	Over-declared £0.825 an order
Across 2,000 orders a year	£1,650 owed to HMRC	£1,650 given to HMRC

The first column is the one that keeps people awake, and it is the smaller problem. Under-declaring gets found, assessed and corrected, and the business ends up where it should have been plus interest.

The second column never gets found. A business selling zero-rated goods — children's clothing, books, most food, printed matter — that charges 20% on delivery is paying HMRC output tax that was never due, on every single order. No inspection will ever raise it, because HMRC is not out of pocket. It persists until somebody reads the invoice template, and the only route back is a claim capped at four years.

Disbursements

Calling postage a disbursement is popular and almost always wrong. Paragraph 3.4 of the notice opens one specific door: a supplier of printed matter may treat mail charges made by mail operators as a disbursement, but only where the supplier meets the general disbursement requirements in VAT Notice 700, ceases to be responsible for the mail once the mail company accepts it for safe delivery, and passes on any discount or rebate from the mail company to clients in full and shares it fairly.

Three conditions, all of them tested, and the rebate one is where arrangements usually fail. Outside that route, describing a line as a disbursement on an invoice does not make it one.

Three things to check this week

What rate does your invoice template put on the delivery line? Most ecommerce platforms default delivery to the standard rate regardless of what is in the basket. If you sell zero-rated goods, that default is costing you money on every order.
Is packing on its own line? If so it is standard-rated within the UK even where the goods and delivery are not.
Does your contract or terms of sale actually require you to deliver? That single question decides whether you have one supply or two, and it is answered in your terms rather than in your accounts.

References above are to HMRC's VAT Notice 700/24, linked in full. This page is a general reference and not advice on a particular business — if a line on your own invoices does not match what is set out here, that is exactly the sort of thing worth sending over.

You bought the stamps without VAT. That does not mean you can sell the postage without it.

Buying postage

Selling postage, which is the part that costs money

Part of a single supply of delivered goods

A separate supply

The arithmetic, in both directions

Disbursements

Three things to check this week