VAT on postage and delivery charges for online sellers: marketplaces, the £135 rule and who owes the VAT

By Hussein Bhaiji FCCA CTA, Managing Partner. Last reviewed: October 2026.

You sell the same product two ways. On your own website you charge the VAT, file the return and pay it over. On a marketplace, the platform accounts for it instead, but only if you are an overseas seller or the goods ship from outside the UK in a consignment of £135 or less. Meanwhile, if your postage line carries no VAT, you may owe VAT on every delivery charge you have made for the last four years. So who actually owes the VAT on your online sales, and why does VAT on postage and delivery charges catch so many sellers out?

Do you charge VAT on postage and delivery charges?

In most cases, yes. If you are VAT-registered and the contract requires you to deliver the goods, postage and delivery charges are part of a single supply of delivered goods and take the same VAT rate as the goods: 20% on standard-rated goods, 5% on reduced-rated goods such as children’s car seats, and 0% on zero-rated goods such as children’s clothing or books.

Whether your postage line carries VAT turns on the contract, not on how the charge is labelled.

If, under the contract, you must deliver the goods to a place the customer specifies, you are making a single supply of delivered goods. The VAT liability of the delivery follows the liability of the goods.

HMRC’s VAT Notice 700/24 is explicit that itemising delivery separately on the invoice makes no difference. Splitting it out does not create a second supply.

That cuts both ways:

• Selling zero-rated goods, such as children’s clothing or most food? The delivery is zero rated too.
• Selling standard-rated goods? The delivery is standard rated, whatever you call it.

Delivery is only a separate standard-rated supply in narrow situations: where the contract does not require you to deliver at all but you agree to and charge separately, where you deliver someone else’s goods, where you make a separate packing charge, or where goods go out on approval.

Two related points. If delivery is free or built into the price, VAT is due on the full selling price at the rate for the goods. And check your own costs: courier services, and Royal Mail services outside the universal service, are standard-rated, so a VAT-registered seller can usually reclaim the VAT on them. Where one delivery charge covers both zero-rated and standard-rated goods, it is apportioned between them on a fair basis (section 19(4) VATA 1994; HMRC manual VATVAL03100).

Can I recharge Royal Mail postage “at cost” with no VAT?

No, not for a retailer posting its own goods. It is one of the costliest errors we see in online retail, because it repeats on every order.

The reasoning runs in three steps.

1. The exemption is Royal Mail’s. Royal Mail’s universal postal services are exempt, but that exemption belongs to Royal Mail and only where the services are subject to price and regulatory control. HMRC states it does not extend to similar services from other suppliers.

2. It does not travel with the stamp. HMRC says directly that if a delivery charge you make to your own customers includes the cost of stamps bought from the Post Office, you may have to charge VAT on the whole amount including those stamps.

3. It is not a disbursement. HMRC gives postage on letters you send to your customers as an example of a normal business cost you must add VAT to if you recharge it, and the same reasoning applies to parcels. A disbursement requires your customer to have been responsible for paying the third party, with you acting as their agent. When you post your own goods you contract with Royal Mail in your own name, for your own supply. The House of Lords confirmed this in Customs and Excise Commissioners v Plantiflor Ltd [2002] UKHL 33, where a mail order company’s postage recharges were held to be part of its own supply.

Who accounts for the VAT, you or the marketplace?

Since 1 January 2021, an online marketplace is treated as the supplier, and accounts for the VAT itself, in two situations:

Goods outside the UK at the point of sale, in a consignment worth £135 or less. Your deemed supply to the marketplace is treated as made outside the UK, so it is outside the scope of UK VAT, and the marketplace charges and accounts for the VAT on its sale to the customer (sections 5A and 7(5A) VAT Act 1994). A consignment containing excise goods falls outside this limb.

Goods already in the UK at the point of sale, sold by a seller not established in the UK, at any value. There is no £135 test. The seller is treated as making a zero-rated supply to the marketplace (Schedule 8 Group 21 VAT Act 1994). That is still a UK taxable supply, so the seller must register for VAT or ask HMRC for exemption from registration (Schedule 1A paragraph 13). Amazon sellers with a UK company are sometimes treated as overseas sellers anyway; see our guide to Amazon FBA and UK VAT establishment.

Above £135 on goods coming from outside the UK, the deemed supply does not apply and normal import VAT and customs rules take over. Sales into Northern Ireland follow different, EU-aligned rules.

There is a business-to-business carve-out, and it works differently in each case. On goods coming from outside the UK in a consignment of £135 or less, a customer who gives the marketplace a valid VAT registration number accounts for the VAT itself under the reverse charge. On goods already in the UK sold by an overseas seller, the marketplace passes the sale details back to the seller, and it is the seller who accounts for the VAT and who must register if it is not registered already.

Do the marketplace VAT rules apply to my own Shopify store?

Generally not, although many sellers assume their own store works like a marketplace.

The deemed supplier rules apply to an online marketplace that facilitates the sale between you and the customer. A hosted storefront on your own domain is not facilitating someone else’s sale; it is your shop. There, you are the supplier: if you are VAT-registered, you charge the VAT and account for it. An overseas seller with goods in the UK must register from the first sale.

So the same seller can have Amazon or eBay accounting for the VAT on some sales while accounting for it directly on identical products sold through its own website. Both are correct, and the bookkeeping has to reflect it.

What is changing?

On 23 June 2026 HMRC and HM Treasury opened a consultation proposing to extend marketplace liability so that platforms would account for VAT on sales they facilitate for UK businesses, not just overseas ones. It would cover business-to-consumer sales by UK businesses where the goods are in the UK at the point of sale, and private sellers would stay outside it. Two mitigations are on the table. The lead proposal is a minimum platform threshold of £90,000 of sales per platform, with views also sought on a lower figure; the alternative is a VAT rate relief for UK businesses below the VAT registration threshold. This is a consultation, not law, and no implementation date has been announced. It closed on 18 August 2026 and a summary of responses is awaited. If the government proceeds there will be a further technical consultation on draft legislation, which is the next point at which sellers can influence the detail.

Separately, the government confirmed in July 2026 that it will remove the £135 low-value import relief for customs duty, by October 2028 at the latest. The customs measure does not change the £135 VAT rule, which still applies to marketplace and direct sales.

What should you do next?

Look at your invoice template first. If postage sits on a separate line with no VAT while the goods are standard rated, you have an exposure running back four years, and it grows every month you leave it.

Fixing the template stops the problem from here on, but it does not correct past returns. If the net error on earlier returns is £10,000 or less, or is up to £50,000 and no more than 1% of the box 6 figure on your current return, you can correct it on your next return. Above that, and always above £50,000, you must report it to HMRC separately. The £85,000 in the example above would have to be reported separately. For a careless error, telling HMRC separately in writing before it has reason to believe it has found the error is what earns the biggest reduction in any penalty, even where the correction itself can go on your return.

Then confirm in writing who accounts for VAT on each sales channel, and make sure your bookkeeping for online sellers treats marketplace and direct sales differently.

We review e-commerce bookkeeping with a tax adviser’s eye. Our team includes Chartered Tax Advisers and professionals who have worked inside HMRC, so we know how these reconciliations get tested. Correcting an invoice template costs almost nothing today; leaving it can cost four years of VAT.

If you sell online, speak to a Chartered Tax Adviser. There is more on our e-commerce accountants page, and a real postage case, where we cut a £78,000 assessment to £29,000, in our VAT case studies.

VAT on postage and delivery: frequently asked questions

Do I charge VAT on postage?

Usually, yes. Where you are VAT-registered and you deliver the goods, postage and delivery follow the goods and take the same VAT rate: 20% on standard-rated goods, 5% on reduced-rated goods and 0% on zero-rated goods.

Can I pass on Royal Mail postage at cost without VAT?

No. The exemption is Royal Mail’s, not yours. Postage you recharge to your customers is part of your own supply of delivered goods, so it carries the same VAT as the goods.

Does Amazon pay the VAT on my sales?

Only under the deemed supplier rules: for goods outside the UK at the point of sale in consignments of £135 or less, or for goods already in the UK sold by a seller not established in the UK. Sales to VAT-registered business customers are treated differently. Otherwise, if you are VAT-registered, you account for the VAT yourself.

What is the £135 rule?

For goods arriving in Great Britain from outside the UK in consignments worth £135 or less, VAT is charged at the point of sale rather than at import. If the sale is made through an online marketplace, the marketplace accounts for that VAT.