The VAT man has spoken - postage and zero rated products.

[Alan Dunster]

Had a conversation with the VAT man today and am a bit concerned. Basically, I sell mostle standard rate VAT products and a few zero rated items, publications. If I have an order with all standard rate items then VAT is added to the postage paid. That's fine.

If however I have an order with just zero rated items then apparently the postage should be zero rated as well as the VAT on postage should follow the products sold. The problem is, the BP system adds VAT to the postage in these cases, which means we are illegally charging VAT and need to refund this to every customer that has had a purely zero rated product order. Not been too many so far but they said as of today I must not charge VAT on posatge for purely zero rated orders.

An even bigger pain in the backside is if i have an order with mixed standard and zero rated items. Apparently you ahve to account for VAT on the postage for the standard items but apply a proportion of zero rated VAT on the postage for the zero rated items in the order. This will be really difficult as the BP system applies VAT on the whole amount of postage.

As I have only recently gone VAT registered its not a big issue but I will have to now manually ammend the postage VAT every time I get an order with zero rated items in it and refund the difference.

If you ahve been operating for a while though you could be in for a shock and a big VAT bill if you have not taken the VAT off for any zero rated items you ahve been selling, which could be significant on clothing and food sales I would imagine.

Interested to hear how others handle this issue.

Regards

Alan Dunster
www.dreamsteam.co.uk

[Rich]

If however I have an order with just zero rated items then apparently the postage should be zero rated as well as the VAT on postage should follow the products sold. The problem is, the BP system adds VAT to the postage in these cases, which means we are illegally charging VAT and need to refund this to every customer that has had a purely zero rated product order.

Go to the Shipping Editor, change the "VAT applies" value to "If order attracts VAT".

[Laura@FYP]

BP handles this perfectly- most of our items are 0% rated, but we do sell standard rated aswell and we searched high and low for an ecommerce solution that could handle the correct postage/vat situation by adding VAT only when a standard rated item is purchased. As rich says, just select 'if order attracts VAT' and it handles the rest

[Alan Dunster]

Ah, thanks Rich. Done that now. There are so many features to find and use as this is such a comprehensive and excellent system. So does this feature adjust the VAT on postage if there is a mixed order of standard and zero rated items?

[Rich]

I'm afraid there is no solution for a mixed basket of standard and zero-rated items. The setting will apply VAT to shipping if any of the order attracts VAT.

[john]

I'm afraid there is no solution for a mixed basket of standard and zero-rated items. The setting will apply VAT to shipping if any of the order attracts VAT.

I think also that the Vat man that told Alan he could zero rate delivery on zero rated products is probably completely wrong anyway, as far as I am aware the Royal Mail is the only organisation allowed to zero rate any delivery charges as it is basically owned by the Crown, if you have a delivery charge on a zero rated item and show it as a seperate charge, the you have to include VAT on this delivery charge, the only way to avoid it is to have a delivery inclusive price for zero rated items.
It would be interesting if anyone had a definitive VAT ruling on this, in writing.

[Laura@FYP]

No this is correct. If the products ordered are all 0% rated, you must not charge VAT on any delivery charged to the customer.

[lewey]

Ah, Laura you've just beaten me to it whilst I was logging in.

The wording from HMRC is somewhat murky - almost like they are trying to be unclear. But VAT on delivery charges (doesn't mater if use post or courier) should follow the nature of the goods. It is easy when they are one or the other, i.e. all 0% rated products can have 0% vat on delivery charges. Gets murky when orders are mixed, and this is where it is ripe for confusion. When I've spoken to their help line they couldn't provide clear guidance for just how we should deal with mixed orders. Basically where we are in doubt we account for vat applied - figure we're better to hand over a bit too much in vat rather than risk under paying.

Would love to see a clear written ruling from HMRC on this for mixed orders though.

[john]

It appears Alan's Vat man was correct, the ruling from HMRC is:

"The position is not affected by whether the charge you make for delivery is separately itemised or invoiced to the customer. In either case there is a single supply for which the VAT liability is based on the liability of the goods being delivered. For example, any element of the price attributed to the doorstep delivery of milk and newspapers will also be zero rated. On the other hand any element attributed to the delivery of standard rated mail order goods will be standard rated."

The keywording is 'any element' but to be correct you would have to split the delivery charge in direct proportion to the method of charge, be it value or weight and then calculate Vat on the taxable delivery charge only!

[little-linguist]

We sell mainly zero rated goods (books) and some standard rated. From the conversation I had with HMRC when we first VAT registered, if we only sell books in an order (or other zero rated items) then the delivery is also zero rated. However, as soon as a standard rated product is included (e.g a customer buys 3 books and 1 game), then the whole of the delivery has to have VAT applied.

Bluepark handles this perfectly as outlined above.