In short: VAT on warehousing, fulfilment and logistics services depends on three questions: who the customer is, where the customer belongs, and exactly what is being supplied. Services to UK business clients are generally standard rated, but storage with a dedicated area can be treated as a land related supply with a different outcome. Services to overseas business clients are often outside the scope of UK VAT, provided you hold the right evidence. Import VAT can usually only be recovered by the business entitled to it as the owner of the goods, which catches out many 3PLs acting for overseas sellers. Getting the treatment right at contract stage is far easier than correcting it after an HMRC review.
Few sectors deal with as many VAT questions as third party logistics. A single client relationship can involve storage, picking, packing, transport, customs clearance, imports and recharged costs, often for a client based in another country. As accountants for third party logistics companies, we find that most VAT problems in the sector come from applying one treatment to everything. This guide sets out the main issues a limited company in warehousing, fulfilment or transport needs to recognise. The detail of each depends on the contract and the facts, so treat it as a guide to where the questions are rather than a set of answers.
For most UK business clients, warehouse services such as storage, handling, picking and packing are standard rated. The complications arise in how the supply is described, packaged and invoiced.
A fulfilment contract often bundles storage, pick and pack, packaging materials, returns handling and delivery. Whether that is a single supply or several separate supplies matters, particularly where different elements would otherwise have different VAT treatments or place of supply rules. The answer depends on what the customer is actually buying and how the contract is structured, not simply on how the invoice is laid out. Costs passed on to clients raise a related question about whether they are recharges forming part of your supply or genuine disbursements, which we touch on in our comparison of 3PL and 4PL models.
This is where warehouse VAT most often goes wrong. HMRC's guidance on the place of supply of services distinguishes between storing goods without giving the customer a right to a specific area, which is a service, and giving the customer a specific area for its exclusive use, which can be a supply related to land. A land related supply may be an exempt licence to occupy land unless the building has been opted to tax, as explained in HMRC's guidance on land and property. That affects the VAT you charge, where the supply is treated as made and, in some cases, how much VAT the business can recover on its own costs. Dedicated space arrangements, such as a ring fenced area or a client specific mezzanine, are worth reviewing carefully.
Under the general rule for business customers, services are treated as supplied where the customer belongs. VAT on fulfilment services supplied to an overseas business client is therefore often outside the scope of UK VAT, even though the work happens in a UK warehouse. The invoice should reflect that treatment, and you need to be able to show why it applies.
The general rule has exceptions. Storage where the client has a right to a specific area can be land related, which means the supply is treated as made where the property is, so UK VAT rules apply whatever the client's location. Supplies to overseas customers who are not in business follow different rules again. Contracts with overseas clients need checking against these exceptions rather than assuming everything is outside the scope.
An overseas seller holding stock in a UK warehouse to sell to UK customers is making supplies in the UK, and usually needs its own UK VAT registration, whatever its turnover. GOV.UK explains who must register for VAT. Where sales go through an online marketplace, separate rules can make the marketplace responsible for the VAT on the sale. Your client's compliance is ultimately their responsibility, but if you store goods for overseas sellers, the Fulfilment House Due Diligence Scheme places its own obligations on you to check them.
VAT on logistics services follows its own set of rules. Freight transport and related services supplied to a business customer generally follow the same rule as other business services, so they are treated as supplied where the customer belongs, wherever the goods travel. Domestic haulage for a UK business client is normally standard rated. Certain transport and handling services connected with the international movement of goods, including some services at ports, can be zero rated where the conditions are met and the evidence is held. HMRC sets these out in its guidance on freight transport and associated services.
Hauliers operating abroad also incur foreign VAT on fuel, tolls and other costs. Recovering it runs through each country's own refund procedures rather than the UK VAT return, and unclaimed foreign VAT is a common and avoidable cost.
Import VAT can generally only be recovered by the business entitled to treat it as input tax, which usually means the owner of the goods importing them for its own business. Postponed VAT accounting lets a VAT registered importer account for import VAT on its VAT return instead of paying it at the border, but a business cannot use it to account for import VAT on goods it does not own, and intermediaries must use the importer's details rather than their own. GOV.UK brings the rules together in its guidance on using postponed VAT accounting. A 3PL that imports client stock in its own name can end up with import VAT it cannot recover, which is a cost that should never arise.
Many 3PLs, or their customs brokers, act for clients at the border. How that representation is structured matters. Acting as an indirect representative can make you jointly liable for the customs debt alongside the client, while a direct representative acts in the client's name. GOV.UK explains the options in its guidance on appointing someone to deal with customs. The choice should be deliberate and reflected in your contracts and pricing.
Some operators hold goods under customs warehousing, which allows duty and import VAT to be suspended until the goods are released or moved on. It needs authorisation and brings strict record keeping and stock control requirements, but for the right client base it can be a real commercial advantage.
Much of the VAT treatment in logistics rests on evidence rather than on the service itself. For overseas business clients, you need evidence that the customer is in business and where it belongs. Contracts need to support the nature of the supply, particularly where storage space is involved. Activity records from the warehouse management system should reconcile to invoices. Monthly import VAT statements should be downloaded, checked and reconciled, rather than simply entered on the VAT return. Transport and export documents need to support any zero rating.
Under Making Tax Digital, records must also be kept digitally and linked between systems, which is one reason the choice of accounting software for logistics companies matters for VAT as well as reporting.
On the cost side, VAT charged on rent where the landlord has opted to tax, on fit outs and on equipment is usually recoverable for a business making taxable supplies. That changes if the business also makes exempt supplies, such as licences to occupy dedicated space, because partial exemption rules can then restrict recovery. Vans and cars are treated differently for VAT, which we cover alongside the direct tax position in our guide to fleet tax and capital allowances. The wider picture of property and running costs is set out in our guide to what it costs to run a warehouse, and the tax treatment of fit outs is covered in our guide to capital allowances on warehouses and fit outs.
VAT timing also affects cash. Postponed VAT accounting removes the need to fund import VAT at the border, and the timing of VAT payments sits within the wider picture covered in our guide to managing cash flow and working capital in logistics.
VAT runs through every stage of our 5 Stage Success Journey. At Compliance and Foundations, it means accurate returns built on clean bookkeeping for the limited company. At Tech Advisory, it means systems that capture the right data, including customer status and import statements. At Business Advisory, it means pricing and contracts that reflect the VAT treatment. At Tax Advisory, our tax advisory team looks at structures such as customs arrangements and partial exemption. At Exit Planning, VAT is one of the first areas a buyer's due diligence examines, and historic errors on overseas clients or import VAT can reduce value or lead to indemnities. Our exit planning work often includes a VAT health check for this reason.
Our VAT services cover returns, reviews of how contracts are treated, overseas client evidence, import VAT reconciliation and support with HMRC enquiries for warehousing, fulfilment and transport businesses. It sits alongside the wider support described on our third party logistics accounting services page.
If your business is in or around the capital, our guide to 3PL accountants in London explains how our London team works with logistics businesses there. To talk through your VAT position, book a conversation with our team.
Warehousing services supplied to UK business clients are generally standard rated. Where a client is given the exclusive right to a specific area of the building, the supply can be treated as related to land and may be an exempt licence to occupy unless the property has been opted to tax, so the terms of the arrangement matter.
Fulfilment services supplied to an overseas business client are generally treated as supplied where the client belongs, so they are often outside the scope of UK VAT. You need evidence that the client is in business and where it belongs, and exceptions such as storage in a dedicated area can bring the supply back within UK VAT.
Domestic logistics services for UK business clients are normally standard rated. Freight transport for business customers generally follows the place of supply rule based on where the customer belongs, and certain transport and handling services connected with the international movement of goods can be zero rated where the conditions and evidence requirements are met.
Generally not, if it does not own the goods. Import VAT can usually only be recovered by the business entitled to treat it as input tax, normally the owner importing goods for its own business. A 3PL that imports client stock in its own name risks being left with import VAT it cannot recover.
Usually yes. An overseas business selling goods held in the UK to UK customers is making supplies in the UK and generally needs a UK VAT registration whatever its turnover, although online marketplace rules can change who accounts for VAT on the sale. A 3PL storing goods for overseas sellers also has its own obligations under the Fulfilment House Due Diligence Scheme.
A warehouse should keep evidence of each client's business status and location, contracts that support the nature of each supply, activity records that reconcile to invoices, monthly import VAT statements that have been checked and reconciled, and transport and export documents supporting any zero rating. Warehouse VAT treatment often depends on this evidence as much as on the service itself.