VAT for Dropshippers
Update (Oct 2020): There are major changes to UK VAT that are being introduced on 1st January 2021. These will impact the way in which droppshippers need to account for VAT. Read a summary of the planned VAT changes here. The information on the rest of this current article will continue to apply until 31st Dec 2020.
Update (Nov 2020): Here is a summary of how the upcoming VAT changes will impact dropshippers and the actions we recommend they take.
VAT is an incredibly tricky and technical tax. The implications of a transaction can vary based on what is being sold, where something it is being sold to/from and whether or not the thing being sold is a product or a service. There are also special rules for digital products and services.
As Accountants for Dropshippers we see a lot of mistakes and get asked a lot questions on the implications of VAT for Dropshippers. This article covers some of the key concepts. See another post on common dropshipping VAT examples here.
Dropshipping from outside the EU into the UK
Before you can determine whether or not you need to charge VAT on ANY transaction then you need to determine where the place of supply of the goods occurs.
If you are dropshipping from outside of the EU into the UK, then the place of supply is considered to be where the goods are shipped from, rather than where they arrive. In this case, as the place of supply is outside of the EU, this means VAT is not due on the sale of the goods.
However, just because there is no VAT due on the sale, it does not mean that VAT should be ignored altogether. There may be import VAT due when you ship goods into the UK.
What about Import VAT?
When goods are imported into the UK from outside the EU (plus who knows what will happen after Brexit) Import VAT and duties will apply on goods valued at above £15. If goods are valued at less than £15 they qualify for Low Value Consignment Relief (LVCR) and will pass through customs without attracting import VAT.
Import duties and VAT is payable by the importer on record.
If you are dropshipping and your customer is the importer on record then technically the customer is responsible for the import VAT. If your business is the importer on record then your business will be liable to pay the import duties and VAT.
Should I tell my customer that they are the importer on record?
If your customer is the importer on record then they are responsible for paying any import duties and VAT.
Customs and Excise may hold back on releasing goods until the VAT has been paid (they will write to the importer on record to inform them of this and will provide payment instructions). This means that your customers may not receive their goods until they have paid the VAT.
This is not an ideal customer experience, so we would strongly recommend that you make this clear to your customers when they are purchasing from your website.
Accountants for Dropshippers
We are accountants for dropshippers and other ecommerce businesses. If you are dropshipper and are looking for an accountant to work with, then you can get in touch with us today.