VAT and delivery charges

We often receive questions concerning the VAT treatment of delivery charges, and also on the separate issue of agent versus principal. These areas are the subject of some confusion and a number of VAT tribunal decisions. A recent tribunal decision has highlighted how complex this can be when both issues combine together.

The case for Orchard Crown Limited looked at if a supplier was the principal making a single supply of delivered goods, or acting as an agent in arranging the transport of the goods. The reason for this distinction was that the VAT treatment of the delivery charge for a single supply of delivered goods follows that of the goods, whereas if the supplier acts as an agent in arranging the postage on the behalf of a principal any recharge for delivery via Royal Mail post will be VAT free.

Just to complicate matters if a supply of goods is made with the option to have them delivered, the charge for delivery is either plus VAT unless it is outside the scope of VAT due to the location of the customer.

In Orchard Crown’s case it sold goods via the Internet and arranged for the post office to collect the goods periodically through the day for dispatch by first or second-class post. The tribunal chairman found that there was nothing to indicate that either the customer that ordered the goods or the Royal Mail believed that Orchard Crown was acting as an agent for its customers. This meant that the charges made for delivery of the goods were plus VAT.

This case throws up some interesting points:

  • If a client supplies goods that are delivered to its customers it is essential to ensure that the correct VAT position for any delivery charges is established.
  • If a client is acting as an agent for a principal it is vital to ensure that there is evidence in place to support this fact. Otherwise the client is at risk of an assessment for VAT on recharges that it has treated as disbursements.

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