VAT on Postage and Delivery: What Ecommerce Businesses Need to Know

If you’re an ecommerce seller, postage probably feels like the easy bit. Weighing the parcel, printing the label, you know the drill. But when it comes to VAT, delivery charges trip up a lot of businesses that sell online because it’s easy to get wrong. Especially when using different couriers for different orders – and offering free delivery on some products but not all.

The good news is that the rule at the heart of it all is pretty simple, even if the situations you can apply it to get a bit fiddly. Here’s how VAT on postage and delivery actually works, how much you should be charging your customers, and what you can claim back.

How does VAT work when it comes to delivering goods?

Let’s start with the basics set out in the VAT Notice 700/24. It explains that when you deliver goods to a customer as part of a sale, you’re making a single supply of “delivered goods” – not ‘supplying’ the goods and delivery service separately.

If delivery is free, or it’s simply built into your sale price with no separate charge, you don’t need to do anything differently. The VAT is due on the full sale price at whatever rate applies to the goods. This is true even if delivery isn’t strictly required under your terms and conditions.

So what rate of VAT should I charge on the delivery?

As long as the goods are delivered as part of the sale, the rate of VAT you charge on the delivery fee should match the VAT rate on whatever you’re sending. So, if you’re selling:

• Standard-rated goods (most things): Charge 20% VAT on delivery too
• Reduced-rate goods: Delivery follows the same 5% rate
• Zero-rated goods (like children’s clothes or most food): Delivery is zero-rated as well

This applies whether you show delivery as a separate line on the invoice or include it in the price. HMRC doesn’t care how it looks on the receipt; what matters is whether delivery is part of the contract to supply the goods.

How VAT works if delivery isn’t part of selling goods

There’s an important exception. If you’re delivering something that isn’t tied to the sale of goods you’re supplying – for example, because you’re running a delivery or courier service for someone else’s products – that’s a standalone service.

• This means the delivery is always standard-rated, even if the goods themselves would normally be zero-rated
• The same goes for a separate packing charge you invoice on its own

This distinction matters most for businesses providing delivery as a standalone service rather than as part of selling their own stock. For example, a courier company or an independent “man with a van” service. In cases like this, you aren’t selling the product itself – you’re just moving it. The delivery is treated as a separate service and is always standard-rated.

Royal Mail vs couriers: The VAT you pay isn’t what you charge

This is where a lot of the confusion comes from around VAT on deliveries, because the VAT treatment of what you pay for postage is entirely separate from the VAT you charge your customer. The postage VAT you incur and the VAT you charge downstream aren’t linked – one doesn’t set the other.

We’ll use the example of couriers compared to Royal Mail’s VAT exempt service.

Royal Mail’s universal service

This includes 1st and 2nd Class stamps, franking, and standard business post. It’s VAT-exempt, because Royal Mail operates under price and regulatory control as the UK’s universal postal provider.

So, you pay Royal Mail £3.50 to send a parcel to your customer, and Royal Mail won’t charge you any VAT on it because of their exemption. But, if the item inside is 20% standard-rated, you still need to charge your customer 20% VAT on whatever you bill them for delivery.

Couriers like DPD, Evri, UPS and Parcelforce

Couriers generally charge standard-rated VAT on their services, since they don’t have the same exempt status that Royal Mail has.

If you use multiple couriers

If your delivery charge to the customer bundles in the cost of stamps you bought VAT-free, HMRC can still expect VAT on the whole delivery charge, not just the courier portion. It’s the liability of the goods that decides the rate, not what you personally paid for postage.

Reclaiming VAT on delivery costs

If you’re VAT-registered and a courier charges you VAT on their invoice, you can reclaim that as input tax in the normal way – same as any other business expense.

But there are some things you need to keep in mind:

• Keep courier invoices/receipts as evidence – you’ll need them to support the claim
• Remember, this only applies where the courier is VAT-registered and has actually charged you VAT. Royal Mail’s standard services won’t charge any VAT for you to reclaim
• If you make any exempt supplies, normal partial exemption rules apply to how much input tax you can recover

It’s easy to lose track of this one, particularly for high-volume sellers running dozens or hundreds of shipments a month through automated checkout systems. While it may be a small amount per parcel, it adds up across a year.

Sending goods outside the UK

Export delivery VAT has its own rules layered on top of the domestic ones. VAT is charged based on where the ‘supply’ happens, so if the goods aren’t used in the UK they’re zero-rated for UK VAT once they cross the border.

That UK zero-rating extends to the postage charged alongside the goods.

You’ll still account for the VAT on your tax return – but you’ll do it at 0%. Make sure you have evidence to show that the goods have been exported too, such as proof of postage, tracking, or shipping documentation. This will help you show why the goods were zero-rated in case HMRC ask.

It doesn’t mean there won’t be any VAT at all. Only the UK VAT is zero-rated on the export, so the buyer might still need to pay import VAT in the country they’re using the goods in. This might be something you decide to build into your pricing or that you mention in your checkout messaging.

The process depends on who you’re selling to

Seeing as we’re on the subject, we’ll give you a quick overview of import VAT on delivery charges. The short version is that the rate of import VAT your buyer pays on delivery charges will usually match the rate which applies to the goods inside the parcel.

For EU customers, the position depends on whether you’re selling to a VAT-registered business or a consumer. Selling to a VAT-registered business is pretty easy, because as long as they have a valid VAT number, the VAT is zero-rated. They’ll just account for it on their VAT return when they submit it.

For goods sold to consumers, sellers can register for the IOSS scheme to collect VAT at checkout on orders under €150, rather than leaving the customer to pay it on delivery.

Since 1 July 2026, a separate flat customs duty of €3 per item also applies to these low-value parcels regardless of IOSS registration, so this might also affect your pricing strategy.

If you’re regularly shipping internationally, it’s worth a dedicated look at your export VAT position rather than assuming the domestic “delivery follows the goods” rule covers you.

Common mistakes to avoid

Deliveries and VAT are confusing, but if you remember the following, you’ll be good to go:

Don’t charge VAT on zero-rated goods

If the product is zero-rated, so is the postage charged with it.

Never assume free postage means free VAT

VAT is still due on the full price you charge for the goods.

Don’t forget to reclaim VAT charged by couriers

It’s recoverable input tax if you’re VAT-registered, but easy to overlook on smaller invoices. Don’t let it eat into your profits!

Avoid mixing up disbursements with recharges

Disbursements are payments you make on behalf of your customer, which are nothing to do with your actual business. It’s their cost, but you pay it. You can recover those from your customer, without needing to treat it as part of your supply for VAT purposes.

Treating postage as a VAT-free “disbursement” is only valid in very narrow circumstances, such as acting purely as the customer’s agent without charging any markup, and the invoice is addressed to the customer.

Recharges are different because these are your costs that you’re passing on to the customer. These are important because they are treated as part of your supply – and that means you need to charge VAT on them.

Keep detailed invoice descriptions

“P&P,” “handling,” or “admin fee” on your invoices can create ambiguity if HMRC ever reviews your records. Keep it clear whether a charge relates to delivery, packing, or something else. You’ll be particularly grateful for your detailed records if you do end up with questions to answer!

Double-check the rules if your business is different

For most ecommerce businesses, the rule is pretty consistent; whatever VAT rate applies to what you’re selling applies to the delivery charge too.

The exceptions – someone else’s goods, approval sales, standalone packing charges, exports – are the bits worth double-checking if your business model doesn’t fit the standard “I sell it, I post it” pattern.

Getting this right protects your margins and keeps your VAT returns accurate. If you’re not sure how it applies to your specific product mix or courier setup, it’s exactly the kind of thing an accountant can talk through with you.

VAT as an ecommerce seller can be tricky to get your head around. Let us help you! Call our team on 020 3355 4047, or get an instant online quote.