Vat on postage charges - am I overthinking it?

Accounting & Taxes
1

Hi guys,

As I’m sat looking at my last vat return a thought struck me about how Shopify processes postage and I think I’m over complicating it,

when we buy postage via Shopify it’s in $ and so is our bill from Shopify every month, without any UK Vat or anything we can reclaim, we don’t seem to pay the shipping directly but rather to Shopify and they bill us for it at a certain threshold

So the question is, am I correct in currently charging vat on my postage, I pay vat on the amount we charge but I can’t reclaim the vat on the purchase of the postage

I think Ive over complicated it in my head

3

@From_The_Stork You’re thinking along the right lines, and it’s actually simpler than it feels. Here’s how it works:

Postage you buy via Shopify:

Shopify bills you in USD and doesn’t add UK VAT.

This means you cannot reclaim VAT on the postage costs.

Postage you charge your customers:

When billing customers in the UK, shipping is part of the taxable supply, so you should charge VAT on it if the goods themselves are standard-rated.

So in short: you charge VAT to your customers on shipping, but there’s no input VAT to reclaim on the postage you pay Shopify. That’s why it might feel a bit confusing, but your current approach is correct.

If it helps, you can also keep your Shopify postage as a separate expense line in your accounts so it’s clear what you’re paying versus what you’re charging VAT on, it makes VAT returns easier to manage.

6

Thank you for the reply,

we do supply mostly zero rated goods as we supply baby wraps, baby clothing so would these products then not charge VAT on the postage also?

7

@From_The_Stork Correct, for UK VAT, shipping follows the VAT rate of the goods. If your products are mostly zero-rated (baby clothing, baby wraps, children’s apparel) then the associated postage is also zero-rated. That’s why you wouldn’t charge VAT on the shipping in that case.

The confusion comes from the fact that Shopify postage doesn’t show reclaimable VAT, but that doesn’t affect how you charge VAT to customers, you just match the rate of the goods being shipped.