VAT for Dropshippers - Most Common Scenarios

We've outlined some of the most common scenarios that apply to dropshippers and how VAT applies. See which scenario applies to you.

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How does VAT work for Dropshippers?

Following on from our original article on VAT for Dropshippers we thought it would be useful to elaborate on the topic further.

We have outlined the five most common scenarios that we encounter below and explained what their respective VAT liabilities:

SCENARIO 1

  • UK Company
  • Goods sold are stored in the UK
  • Ships to UK Consumers

This company needs to register for VAT after reaching the VAT threshold of £85,000.

This business can voluntarily register for VAT earlier if it wants, however, this it is rare that this would be beneficial to an Ecommerce Businesses.

SCENARIO 2

  • UK company -or- EU -or- overseas (e.g. US LLC) company
  • Goods sold are stored outside of the EU
  • Ships to UK

If the business is shipping goods from outside of the EU directly to consumers based in the UK, then the place of supply rule renders this sale outside of the scope of VAT.

There will, however, still be VAT due when the goods are imported into the UK. In these cases, the VAT is due by the person named as the importer on record.

Usually, if you are shipping directly to a consumer, then the consumer will be the importer on record.

IMPORTANT: You should confirm with your supplier/shipping provider whose details they are using as the importer on record when sending goods into the UK (or EU) because this person is ultimately liable for the VAT on import.

If the consumer is the Importer on record, this means the consumer may not be able to receive their goods until they have paid the duty/VAT due. Instead of receiving their parcel, they may receive a written notice informing that their goods are being held, along with payment instructions.

IMPORTANT: An unexpected additional outlay for your customer will likely lead to a negative customer experience. We strongly recommend making clear to clients on your website and on the checkout if additional fees may be due.

Are your goods are worth less than £15?

If you are shipping goods valued below £15 into the UK then they are below the threshold and they will not have import VAT applied to them. If above, then the importer on record will be charged VAT.

SCENARIO 3

  • UK company
  • Storage OVERSEAS
  • Ships to OVERSEAS

These sales are outside the scope of UK VAT and so you will not need to register for VAT, these sales do not contribute to your VAT thresholds, nor do you charge VAT to your customers.

SCENARIO 4

  • EUROPEAN or OVERSEAS company
  • Storage OVERSEAS
  • Ships to UK

These sales are outside of the scope of VAT based on the place of supply rules. The same outcomes outlined in Scenario 2 apply

SCENARIO 5

  • UK Company
  • Storage UK
  • Ships to EU

The sales you make are in scope for VAT as in Scenario 1, but the thresholds you need to monitor are the Distance Selling thresholds. Once you breach each country's specific threshold you need to register for VAT in that country (plus in the UK if not already registered). Most thresholds are near the €30,000 mark, some at €35,000, with Germany a notable exception at €100,000. The UK's threshold for EU companies is £70,000. The source material can be founds here (columns 3 and 4).

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