VAT on shipping?

brynne

Background: I've been operating an eCommerce shop since 2017. It ticked along in a sort of glorified hobby capacity until we got a Trading Online Voucher and did some serious SEO work in the winter of 2018. Business started picking up and, in March 2019, we opened a bricks and mortar shop. We knew we would never see a huge income from the shop, but it did give us the opportunity to add to our product range which, in turn, boosted online sales. By January 2020, we were selling over 5 times more than 12 months previously, but we were still 'small fry'. Then came Covid 19 and a completely unexpected surge in orders for facemask materials and sewing supplies of all sorts. Being a single household operation, my husband and I were able to keep the online shop going throughout the lockdown. During March, April and May, we were working day and night to fill orders and restock.

OK. So that was then. Once things started to open up at the beginning of June, sales dropped back slightly and we were able to start catching up with the admin and accounts. My husband downloaded the sales figures from the website and we suddenly realised that we were now very close to the VAT threshold so, from 1st July, we are now registered for VAT. 'It's an ill wind ...' and all that.

Now we're trying to work out our VAT liability in terms of shipping charges. We ship exclusively via An Post, whose postal charges, we understand from the Revenue website, are exempt from VAT. We have a formula for shipping that - reasonably accurately - calculates the weight of any particular order and assigns it a rate according to whether it will go as a 'large envelope', a 'packet', or a 'parcel'. To our estimate of the An Post fee, we add €0.50 handling charge. Would I be right in thinking that, because An Post fees are VAT exempt, we are only liable for VAT on the €0.50 handing fee?

Or, by adding a €0.50 handling charge to the An Post rate, are we effectively making the whole shipping charge liable for VAT.

Sorry, this is all very new to us and sometimes difficult to explain to our accountant.

Darc19

Yes, that is correct.

If an post are charging you €4.50 and you charge €5, the full amount is vatable


But likewise, you are correct that if you use an post and charge the anpost cost or lower, the shipping fee you charge the customer is vat exempt even though an post will charge you vat.

If you use any other delivery company, this does not apply.


Also, if your volume with an post has increased, look to get a better rate. You should be under €5 per parcel.

brynne

Thanks for confirming our understanding, Darc19. Also, thanks for reminding me to check for discounts. I did speak to An Post to ask if our new volumes would qualify. However, we don't often send actual 'parcels'. The items we sell are mainly small and light, so the vast majority our our orders ship as a 'large envelope' for less than €4.00.