What are the VAT rules on delivery charges?

“What are the VAT rules on Delivery charges?” asks Dave, a client. The process for working out the VAT treatment of delivery charges can be quite complex.

Here are some of the main issues when deciding whether or not VAT needs to be applied.

  • No charge for delivery. HMRC’s guidance is clear.  So if delivery is free, or the cost is built into the normal sales price, VAT is accounted for on the value of the goods based on the liability of the goods themselves. And this applies whether or not delivery is required under the contract.
  • Goods on approval. If your firm delivers goods on approval, then this service is not classed as delivered goods. In this case, the delivery service is a separate VATable supply.
  • Additional charge for delivery.  There is a single supply of delivered goods for which the VAT liability is based on the VAT liability of the goods.
  • Delivery is not required. Assume that delivery is not included in a contract to supply goods. In this case,  the delivery charge is liable to VAT at the standard rate. This is irrespective of the VAT liability of the goods supplied. This assumes the delivery is within the UK.
  • Separate charge for packing. A separate packing service for which a charge is made will be standard-rated within the UK.
  • Food deliveries. The rules as to whether VAT is payable on delivery charges for food follows the VAT liability of the food. For example, the supply of hot takeaway food is usually standard-rated for VAT and a delivery charge would also be subject to VAT.

Additionally, where there is a mix of zero-rated and standard-rated items delivered, or where goods are delivered internationally, the situation can be more complex.  Further attention may be required.

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