VAT on postage of orders

VAT isn’t always utterly straight-forward to understand. When it comes to postage, it can get even more confusing.

Is postage exempt? Do I charge VAT on packaging and delivery? Who pays the VAT on my carrier charges?

It’s a minefield. Never fear, here are some examples to help simply the process.

Charging VAT on postage

Posting letters or parcels with Royal Mail is exempt from VAT (unless you’re recharging those costs), however, other couriers or delivery costs charged by delivery companies are subject to VAT. Businesses that supply delivered goods and use the Royal Mail Group for delivery will not be charged VAT, so there will be no VAT to reclaim.  However, where other courier and delivery companies are used, VAT will be charged and that VAT can be reclaimed in the normal way.

Using the government’s current VAT on postage guidelines, these examples should answer whether or VAT is owed for postage on ‘delivered goods’.

I deliver goods to customers, but delivery is free

If delivery is free (or accounted for in the price of the product itself), VAT is accounted for by the sales price of the goods.

I deliver goods to customers and charge them for postage

Whether the postage is separately itemised, or included in the price, the VAT is based on the liability of the goods.

I deliver zero-rated goods

If you deliver zero-rated goods (e.g. printed materials), then the postage is zero-rated also.

I am a retailer using a retail scheme

Accounting for delivery charges will depend on the type of scheme you are registered under. Check the relevant guidance.

Claiming VAT on postage

Postage costs are a business expense. When the courier charges you VAT, you claim it back in the same way you’d claim back any other VAT-charged expense.

Charging VAT within the EU

At the moment, if you sell goods or services to someone who is not VAT registered in another EU country, you must charge VAT as you would for a UK customer. You must include the sale in your VAT return, as normal.

If you are selling goods to someone who is VAT registered, in the EU, you can zero-rate the supply for VAT purposes as long as:

  • You sent goods out of the UK to an EU country
  • The person you are sending to is VAT registered in their EU country and you have their VAT number
  • You have evidence of the sale and postage (sometimes known as ‘evidence of removal’)

You must keep the evidence of this sale for 6 years, in case HMRC would like to see it and you must still include zero-rated sales on your VAT return.

To keep up to date with changes on the postage VAT guidance, check with HMRC. After Brexit, there may be several changes to the ways in which we claim and charge VAT, both inside and outside Europe.

If you’re concerned about the implications of Brexit on your small business, please get in touch or check out our article on Brexit Implications.

Making Tax Digital – what you need to do now

The Making Tax Digital countdown has started! If you’re a VAT registered business with a with a turnover of over £85,000, you will no longer be able to submit VAT returns through the HMRC website. By April 1st 2019, all VAT registered businesses need to be ready to make tax digital.

How do I do that? What do I need to do? Is it too late?

We’ve put together a useful checklist to help you prepare for Making Tax Digital. Follow these steps and look forward to a paperwork and stress-free VAT return in the very near future.

1. Figure out the impact

If you’re already VAT registered, or are fast approaching the threshold, then MTD is for you. Not only will you submit your VAT returns digitally, but you’ll be required to do some digital record keeping too. If you’re already using an accounting software (or your accountant is), then this shouldn’t be much of a change. If it’s all new to you, consider what and who you might need to help you get started.

2. Check you’re not exempt

Before going through the process of getting your accounts online, just check that you’re definitely required to. Eventually, all businesses will use MTD – however, some are exempt until October 2019 or later. These include:

  • Annual accounting scheme users
  • Trusts
  • Not-for-profits/charities
  • VAT divisions and VAT groups
  • Traders based overseas
  • Local authorities/councils
  • Public corporations
  • Some public sector entities

3. Work out how you can integrate MTD

This is when it might be useful to engage an accountant. Many MTD software providers offer much more than simple VAT returns. In fact, you can automate a huge amount of your accounting, once your set up. This means that once the initial set-up is complete, keeping your business and your accountant up-to-date is easier than ever!

  • Invoices – software such as Xero, QuickBooks, Sage and FreshBooks allows you to invoice directly out of the software. Whilst it’s still good to have paper or email copies of invoices, invoicing from the software allows it to log and reconcile payments intuitively.
  • Expenses – if you’ve bought something through your business account, it’s simple to ‘code’ it as an expense before you’ve forgotten what it was. Apps such as the QuickBooks app allow you reconcile expenses as you go about your day. Topped up with fuel? Tap the notification on your smart phone and assign it as an expense before you’ve left the forecourt.
  • What you owe – these intuitive programs can calculate your tax and VAT contribution as you go along. See a daily running total of your tax and VAT liabilities at the click of a button – no more nasty surprise bills!

4. Look into software options and speak to an accountant

Different accountants use different types of software. Have a look at what’s available and check that your accountant or potential accountant is using and MTD software that suits you. There are hundreds to choose from, but some of the popular ones include:

  • Xero:Many accountants choose Xero for making the complex, simple. Code your own accounts with terms that make sense to you and easily integrate as many bank accounts and PayPal accounts as you need.
  • QuickBooks Online : Favoured by small businesses and those on-the-go. QuickBooks offers a swipe right-swipe left system to reconciling payments and deposits, wherever you are.

For more examples, check out the Government Guidance on MTD software.

To ensure that you’re fully Making Tax Digital ready, it’s best to ask an expert. Get in touch with us today to find out how we’re making tax digital with Xero and QuickBooks.

The 411 on VAT and Making Tax Digital

From April 2019, all VAT registered businesses are required to keep digital VAT business records and send returns using Making Tax Digital Software.

If your turnover is below the VAT threshold and you are, therefore, not VAT registered, you have until at least April 2020 to prepare for Making Tax Digital. However, you can still choose to start using digital software to record your accounts if you’d like to get ahead of the game.

What’s a ‘VAT registered business’?

In the UK, if you run a business with a taxable turnover over £85,000 – you are liable to pay VAT. As a VAT registered business, you charge VAT to your customers, and claim VAT back on goods and services purchased by your business. VAT stands for Value Added Tax.

What is Making Tax Digital software?

Software that is Making Tax Digital compatible includes digital programs that can store and submit your quarterly VAT returns for you. Due to the sometimes confusing nature of VAT and tax, programs that calculate your VAT obligations are incredibly popular. From April 2019, the use of these programs will be mandatory. Streamlining this system and getting everyone online means that there is a lot less admin for both the end-user (the VAT registered business) and HMRC.

Some popular examples of Making Tax Digital software including:

  • Xero: One of the most popular bookkeeping and accounts programs. Many accountants favour Xero for making the complex, simple. It also allows for multiple users under each account – allowing you and your accountant to jointly reconcile, add and update your data.
  • QuickBooks Online: Favoured by small businesses and those on-the-go. QuickBooks has a great app and is heralded by those who file numerous expenses.
  • For more examples, check out the Government Guidance on MTD software .

Who is exempt from Making Tax Digital?

There are some exceptions to the new Making Tax Digital rules.

  • At the moment, only VAT registered businesses are legally required to be MTD ready.
  • Charities and non-profits will be exempt from MTD.
  • Those who cannot used digital software due to reasons such as disability, remoteness, age or religion are exempt from MTD.

How do I prepare for Making Tax Digital?

If you are VAT registered and you are not Making Tax Digital ready, you might want to speak to an accountant. With the deadline fast approaching, you may some assistance in getting set up. Once you’re set up, both you and your accountant will have access to your digital account.

What are the benefits of Making Tax Digital for VAT registered businesses?

1. Streamlined processes

The HMRC website is not renowned for its simplicity. With MTD, you can choose a software or accountancy package that makes sense to you!

2. Less paperwork

We’re all here for the environment, and the state of our desks. With MTD, you’ll no longer be drowning in paperwork.

3. Fewer tax mistakes

With potentially costly penalties, making tax mistakes is something everyone wants to avoid. With an automated system, all you have to do is check the data. HMRC also says avoidable tax mistakes cost the Exchequer more than £8 billion a year, with £3.5 billion of revenue lost because of VAT-return mistakes alone!

4. Growth

Knowing your numbers is a powerful asset to any business. Digital systems allow you to pull reports and examine processes at the click of a button! You’ll easily be able to assess areas of your business and make necessary adjustments.

5. Anytime access

Most MTD software’s have app capabilities and all are available 24/7. No more surprises and no more waiting for the bank to open!

If you’re still concerned about Making Tax Digital, and how it might affect you – check out Making Tax Digital: how VAT businesses and other VAT entities can get ready or get in touch today.

Brexit implications on exports for small businesses – for people with online shops selling to the EU

With so much confusion and so few answers surrounding Brexit, it’s a stressful time for those with European customers. While 66% of UK companies say Brexit will impact them, only 21% of small businesses have actually started adapting their business processes to prepare.[

So, how can you/should you prepare when we aren’t entirely sure what Brexit will look like yet? The UK and EU governments have begun to publish guidance on how Brexit will affect UK businesses. Of course, in the course of time, things may become clearer and a better Brexit strategy might be possible. In the meantime, the safest way to operate is under a ‘no-deal’ assumption. If you run a small business or online business that trades with EU, here are some things to bear in mind:

  • Free trade with the EU

Businesses can currently move goods freely between the UK and other EU states. Other than alcohol, tobacco and oil, there are no import or export duties to pay. According the government’s guidelines, “after the UK leaves the EU, in the event of a ‘no deal’ scenario, businesses exporting goods to the EU will be required to follow customs procedures in the same way that they currently do when exporting goods to a non-EU country.”

In order to prepare for this, it is advised that businesses:

  • Familiarise themselves the UK EORI (Economic Operator Registration & Identification scheme) registration process.
  • Consider how they will handle export declarations. This could be through engaging a customs broker, freight forwarder or logistics provider.
  • Look into whether you may need to apply for an export licence.
  • Trademarks and patents

Currently, EU trademarks are intellectual property rights, granted by the EU Intellectual Property Office. This means that a business with its own trademark is protected across all EU member states, including the UK. If you have trademarked your logo for use on packaging or product labels, then you’ll need to make some minor changes in the event of a ‘no-deal’ Brexit.

  • Trademarks will be subject to renewal in the UK.
  • Trademark holders with an existing EU trade mark or registered Community Design will have a new UK equivalent right granted that will come into force at the point of the UK’s exit from the EU
  • VAT

Domestic VAT will not change as a result of any form of Brexit. However, many businesses are concerned about how it will affect imports and exports within the EU. The Chequers agreement, which is still under negotiation, details the future relationship between the UK and the EU. This document suggests:

  • There will be ‘common cross-border processes and procedures’ to ensure that new declarations and border checks are not required.
  • If there is a ‘no-deal’ Brexit, postponed VAT accounting will apply to UK import and exports. i.e UK VAT-registered businesses will be able to account for VAT in their VAT return, rather than paying it as goods arrive or depart the UK border.
  • You’ll need to be aware of the individual VAT requirements of the EU countries you sell to.

There are many more changes that are yet to be confirmed, and many other ways in which the UK’s small businesses might be affected. At present, the general advice is to…

  • Start talking about Brexit. Chat with your suppliers, your colleagues and trade organisations. It’s not too early to be asking questions and beginning negotiations.
  • Review your processes by documenting every stage of running your business. When official guidelines are released, you’ll be able to quickly identify the areas of your business that are going to change.
  • Embrace the change. As a small business, you’re in a great position! You haven’t got millions to lose (yet) and you are used to adapting and improving. See this new world as a challenge.

For more information on how we can help you with the Brexit changes, please contact us today.