VAT applies to Royal Mail and Parcelforce from 31st January

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If you’re a Royal Mail or Parcelforce customer there are only a couple of weeks left until they start to charge VAT on some of their services. How you react to these changes will largely depend on whether you’re VAT registered, if you are able to reclaim VAT and whether alternative carriers will become more cost effective for you.

As VAT has not been charged on these services before if you’re unable to reclaim VAT it will result in a 20% rise in your postage costs. This is combined with Royal Mail price changes coming into effect on 4th April 2011 for non-contract customers and as yet unannounced contract service rates will be changing separately in May.

This is a double hit on profits for many online retailers, not only can they not reclaim VAT but they’re being hit with a price rise a couple of months later. It may be time to reassess the delivery service you use and offer to your customers. However it is worth remembering that many Royal Mail services will remain exempt from VAT so check before you make any decisions.

If you are a Parcelforce customer and are unable to reclaim VAT on their services then it’s worth talking to your Parcelforce Account Manager, although from personal experience it’s unlikely that they’ll make any price changes to your contract unless your volumes are increasing.

Parcelforce has never been the lowest cost courier, but I’ve always liked their service. An added bonus is that Parcelforce tracking numbers can be entered onto eBay which informs customers when their item is likely to be delivered and assists in locating any undelivered items. However a price rise of 20% starts to make the service look very expensive compared to the alternatives. Even taking VAT into account there are many other couriers offering lower contract prices and many of the consolidators who resell courier services also offer lower rates.

Are you affected by the VAT rises or can you simply reclaim the costs on your VAT return? I’ve often heard complaints from VAT registered sellers that they can’t reclaim VAT on Royal Mail and Parcelforce – will VAT being added make their services more attractive? If you’re not VAT registered will it affect the services you use or will you continue to use your current carriers?

9 Responses

  1. It’s also worth noting that if you’re a Royal Mail SmartStamp user that VAT will also be applied to your monthly subscription from next month.

    The monthly £4.99 fee will rise to £5.99.

  2. Even though we can claim it back it could affect cash flow having to pay out 20% more on our RM Tracked invoices.

  3. We use PPI, so the only real change will be airmail (inc’ Airsure/signed for) to the EU will now attract VAT.

  4. And it seems there is a backdoor price increase to countries that are in Europe but not in The EU (e.g. Switzerland & Norway). These countries will now fall into the ‘Rest of World’ category and be subject to the (roughly 40%) more expensive tariff!

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