Is this a disbursement for Vat ?

[SammyJ]

As a first time user of Taxation Web I would very much appreciate any comments on the following. We run a fulfilment house sending out direct mail on behalf of many large companies and obviously incur substantial postage costs on behalf of clients. When we invoice the client we charge Vat on our fees for sending out the items but we zero rate the postage costs which we are advised are a disbursement. As our annual postage / mailing costs are circa £250,000 I really would like a second opinion that the postage can be classed as a disbursement as having read other posts on this site I am not so sure. If we are wrong I would rather find out sooner rather .......... ! Many thanks in advance for any assistance.
Sammy J

[Taxesclear.co.uk]

I think you should read this link

http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000114&propertyType=document#P21_1043

I think you should charge VAT on the postage

Dennis@taxesclear.co.uk

[Taxesclear.co.uk]

2.3 What if I have to deliver the goods and I make a charge for this?

The important test is whether delivery is included in the contract. You are making a single supply of delivered goods if, under the contract, you have to deliver the goods to a place specified by the customer. This might include the customerÂ’s:

own address;
friends or relatives; or
their own customers.
The position is not affected by whether the charge you make for delivery is separately itemised or invoiced to the customer. In either case there is a single supply for which the VAT liability is based on the liability of the goods being delivered.

For example, any element of the price attributed to the doorstep delivery of milk and newspapers will also be zero rated. On the other hand any element attributed to the delivery of standard rated mail order goods will be standard rated

[vatexpert]

As a direct mailing business, you are entitled to treat postal charges by the Royal Mail as VAT-free disbursements provided:

1. The normal conditions for disbursement treatment is satisfied
2. your client specifies who the mail recipients are or has access to the mailing list before the mail is sent
3. Your responsibility for the mail ends when it is accepted for delivery by the Royal Mail
4. You pass on any Royal Mail discount to your client

If these conditions are not met you will be expected to account for VAT on the postal charges.

Joe Wilkins
www.vatexpert.net

[SammyJ]

many thanks for the very quick replies - as there are slightly conflicting views I maybe should point out:

- our clients specify the actual recipients and provide us with the mailing list
- I believe our responsibility ends once the mail is collected from us by Royal Mail
- we do pass on Royal Mail discounts to the client. We charge exactly what we are charged.

Does this help a little ?

Question to vatexpert if poss - briefly what does point 1 mean - normal conditions for disbursement treatment ?
Many thks
Sammy J

[vatexpert]

Sammy, it seems that you can treat the postal charges as disbursements on the basis of the information provided, so long as you satisfy the normal disbursement rules, as mentioned in point 1. of my previous reply. There are eight conditions and these are set out in s. 25 of the VAT Guide (Notice 700) as follows

"You may treat a payment to a third party as a disbursement for VAT purposes if all the following conditions are met:
• you acted as the agent of your client when you paid the third party;
• your client actually received and used the goods or services provided by the third party (this condition usually prevents the agent's own travelling and subsistence expenses, telephone bills, postage, and other costs being treated as disbursements for VAT purposes);
• your client was responsible for paying the third party (examples include estate duty and stamp duty payable by your client on a contract to be made by the client);
• your client authorised you to make the payment on their behalf;
• your client knew that the goods or services you paid for would be provided by a third party;
• your outlay will be separately itemised when you invoice your client;
• you recover only the exact amount which you paid to the third party; and
• the goods or services, which you paid for, are clearly additional to the supplies which you make to your client on your own account.
All these conditions must be satisfied before you can treat a payment as a disbursement for VAT purposes."

Joe Wilkins
vatexpert.net

[SammyJ]

Dear Joe - many thanks for your clear explanation on this subject - it is appreciated - I think on the basis of what you have said we are in fact correct in not charging Vat on the postage - I will however re-read just to make sure we satify all conditions. I have entered your firms details
on our system just in case we come up against future Vat conundrums ! Again many thanks
Sammy J