If you are a VAT registered trader in the UK that needs to use postage stamps and postal services on a regular basis then you should learn all about vat on postage to save money in your business. If you can meet certain conditions set up by HM Revenue and Customs or hmrc vat then you can surely treat your postal charges as reimbursements.
Once your taxable sales jump over the vat threshold limit set up by hmrc then you will have to apply for vat registration. Upon successful registration, you will turn into a vat registered trader and need to follow all uk vat rules as specified by hmrc. Many other eu countries too have adopted vat in a bid to ease cross border trading and increase their vat tax revenues. All eu vat rules are formed by the European Commission although each member country usually adapts those rules to suit their economy. In the case of postal charges, hmrc has defined their own rules that might allow you to reimburse some of your expenses and lower your business costs, provided you meet the criteria set up by them.
There are basically 3 vat rates applicable in the UK, Northern Ireland and the Isle of Man. The standard vat rate on most goods and services is 17.5%, which will rise to 20% from January 4, 2011. The reduced vat rate is 5% while certain goods and services attract zero vat rate. There are also specific goods and services that are vat exempt while some fall outside the purview of vat. As a trader you can usually recover previously paid vat although in cases of vat exempt goods or services it is a little difficult to file for vat reclaim.
As per the hmrc.gov.uk website that explains vat rates on various goods and services, vat on postage is split up into postal services and postal stamps. Postal stamps that are unused are exempt from any vat. Postal services that have been supplied by Royal Mail or any other licensed Postcomm operator too are exempt from any vat. However, any postage or delivery inside the UK where postage is charged separately such as mail order deliveries then the vat charged will be of the same percentage as that charged on the vat invoice.
Again, postage that is charged as an optional extra on delivery of goods will always attract the standard rate of vat. You can refer to notice number 700/24 of hmrc vat to learn more about applicable vat and conditions that need to be met if you want to claim postal charges as disbursements. You will however, be able to claim only on postal charges paid to Royal Mail or any other operator licensed by Postcomm. Different vat rules will apply if you send goods outside the UK or receive them from other eu countries that follow vat, or any other country in the world. If you are not sure on vat charges or reimbursements then you should contact your vat agent or consultant to stay on the right side of vat law.
If your business requires the use of postal services to a large extent then it can be profitable if you know about all applicable vat rules on postage. The hmrc vat department has several rules on vat on postage that need to be understood and followed before you can apply for reimbursement on your postal charges.