I learnt on this forum that when our small company posts goods out to customers we should charge VAT on the postage: our delivery as part of the service is subject to VAT even though the cost of the stamps themselves is exempt.
However that prompts a new question. I've noticed that loads of invoices from suppliers have delivery as a separate item with no mention of VAT.
For example:
Goods £10
VAT on goods £2
Delivery £3
I assume they are getting the treatment of VAT on delivery wrong, as I have read it is a very common error to assume there is no VAT if you do not aim to make a profit on delivery.
How should I record this in my accounts? I must admit that I am strongly tempted just to put it in as it appears, i.e. putting the inward carriage as £3 with no VAT, because I want to avoid the labour of calculating a new total for VAT.
However, if I do have to do a new calculation, would it be taking the total price of £15 and saying that the VAT was £15 x 0.2 / 1.2 of that = £2.50?
It had honestly not occurred to me that calculating the VAT as a proportion of the total would result in us claiming more money! Now that you point it out, I can see that is a big no-no from the point of view of HMRC, quite apart from the trouble of calculation.
For those suppliers with whom we have a continuing relationship I might politely mention that they are doing it wrong - but I haven't got time to reform everyone who sends us an invoice with this particular error
It is worth 'politely mentioning' to suppliers, so that you can recover more VAT on each purchase. If the gross price remains the same, that will give you a cost saving, too!
