VAT to be charged on some Royal Mail services

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Creative Commons License photo credit: soapbeard

Following yesterday’s budget the Royal Mail have announced that they are to lose the VAT exemption for some of their services from 31st January 2011. Most mail services such as 1st and 2nd class (including Recorded Signed For) will retain the VAT exemption. However other services such as Special Delivery 9.00am Stamp (not other special delivery options), Royal Mail Tracked and Royal Mail Sameday will be subject to VAT.

Also affected are International services including Airsure although standard Airmail will retain its exemption. However if you pay for your Royal Mail services on contract then all International contract services will be subject to VAT.

Those that use Royal Mail’s Tracked service will almost certainly be VAT registered, but the burden of accounting for VAT will increase, as it will have to be collected and then reclaimed on your VAT return. If you’re on Flat Rate VAT you’ll end up paying the VAT and be unable to reclaim it so it will be a real increase in the cost of postage services.

For contract customers using International Airmail the VAT situation will become even more complex. You’ll need to collect VAT on Royal Mail International services sent within the EU, but items sent to non-EU destinations will remain VAT exempt.

Regardless of the cost to non-VAT registered sellers who will incur VAT on Royal Mail deliveries, the administration work to correctly collect and account for VAT on Royal Mail services will increase the workload for small businesses. Whilst larger companies employ full time accountants to handle their finances, small businesses (by which I mean eBay sellers who are either sole traders or have just a couple of employees) will be forced to account for VAT and split International and EU postage costs in order to complete their VAT return. This is an unwelcome administrative burden for small business owners which will add nothing to profitability.

eBay have been lobbying the government on many matters recently through the Online Business Index (opens in .pdf) and through their recently released Online Business Manifesto (opens in .pdf). Now it’s time for them to lobby the government to simplify the VAT rates on Royal Mail services for eBay sellers.

31 Responses

  1. Royal Mail services for eBay sellers
    These changes affect all businesses, not just eBay sellers. Lobbying would be a bit more credible coming from an organisation such as the FSB, who represent a much broader range of small businesses and aren’t constrained in their activities by being a public company.

  2. More a cash flow issue really having to pay out 17.5% more for Royal Mail services on an invoice. The claiming back task is not really that time consuming as the invoice has to be entered into Sage anyway.

  3. its false economy self accounting our accountant earns every penny of his cost plus more

  4. I think I must be missing something. We have to charge VAT on all our postage anyway as we are a ‘mail order’ business. It is not that difficult to claim the VAT back. It will be about 6 more VAT entries per quarter for me.

    I would like to see VAT charged on all postal services so that businesses that are registered are able to compete more with cowboy businesses.

    I pay an average VAT rate well over 17.5% as postage is 10% of my turnover and I have to charge VAT on this but can not claim it back.

  5. Is a Royal Mail packetpost account where a monthly direct debit is set-up a “contract” as stated in paragraph 2?

  6. This is just another way for the Goverment to Plug it’s greaT BIG FINANCIAL HOLE it made….damn right 👿

  7. Oh great! I recenlty made a claim with RM and it asked if we were an ebay business we ticked yes.
    They then sent us a letter saying they wanted to see the cost to us of the items lost and would re inburse us for that not the amount we sold the goods for which was BIN (not that it should make any difference)
    Amfm AKA confused

  8. When we used to claim for losses my biggest annoyance was Royal Mails policy of “presuming the customer had received the lost item” just because they didnt reply to RM’s letter.

    Gave up claiming and self insure now as was too tme consuming and not cost effective as hardly ever got anything back due to the above

  9. Accounting should be easy. I get a statement each month with services used and (i presume) vat paid. Its then a case of including this in my calculations for VAT.

    If an Airsure service is used to e.g. USA, then it should be VAT exempt, as its a payment originating from outside EU?

    For competitors who are not VAT registered, this could be a commercial advantage??


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