Do I need a VAT number for my UK dropshipping company?
When running a UK dropshipping company, you must register for VAT with HMRC if your annual VAT-taxable turnover exceeds £90,000. Additionally, if any of your suppliers or customers are located outside of the UK, you may need to register for VAT in one or more other countries, regardless of your turnover. Upon each registration, you’ll receive a VAT number that must be displayed on your website and invoices.
The VAT rules for dropshipping companies are often more complex than those for standard retail businesses. This blog provides an overview of the various VAT requirements, depending on the locations of your customers and suppliers. This information should help you determine if, and where, you need to register for VAT.
VAT registration requirements for your UK dropshipping company
The VAT position and requirements are relatively straightforward if your online store, suppliers, and customers are all based in the UK. In this case, you only need to consider UK VAT. However, the nature of dropshipping often means this is not the case.
Things can become complicated when dealing with customers and suppliers outside of the UK. This can create various scenarios in the logistics chain between the UK dropshipping company, the supplier, and the end consumer. Each scenario may present different VAT implications to consider.
Crucially, you’ll need to map out the contractual relationships in each chain transaction to determine whether any VAT is due, where it arises, and who is responsible for paying it. Knowing where the supplier ships your goods from is essential for understanding the VAT obligations of your UK dropshipping company.
If you sell products to customers in the EU, you’ll need to register for VAT in each destination country. Alternatively, you can register in just one EU Member State via the One Stop Shop (OSS) taxation scheme. Unlike UK VAT, there is no turnover threshold for EU VAT registration; you must register as soon as you start selling there.
The One Stop Shop (OSS) scheme is the better option if you have customers in multiple EU countries. It allows you to declare and pay all VAT collected from customers throughout the EU, drastically reducing your administrative burden.
To help you determine your VAT obligations, review the various combinations of supplier-to-consumer geographical relationships outlined below. These examples should simplify identifying your UK company’s VAT responsibilities.
UK supplier shipping to UK customers
This is the simplest scenario: a dropshipping company, supplier, and customer are all situated in the UK.
In this case, you must register for VAT if your total VAT-taxable turnover for the last 12 months exceeds £90,000. However, you can still opt for voluntary VAT registration if your turnover is below this threshold.
Once registered, you must charge the applicable UK VAT rates on all taxable goods sold to customers through your suppliers.
UK supplier shipping to EU customers
If your supplier is in the UK and your customers are in the EU, you need to register for VAT in the UK once your company’s taxable turnover exceeds £90,000. Voluntary VAT registration is also an option if your turnover is below this threshold.
Sales to EU customers via a UK supplier are classified as exports from the UK and are zero-rated for VAT. This means the UK VAT charge to customers is 0%, but the sales are still VAT-taxable and count towards your turnover. EU VAT rules differ in this situation. You must register for VAT in at least one EU Member State, charge the customer the applicable EU VAT rate (based on the destination country) at the point of sale, and submit a non-Union One Stop Shop VAT Return.
UK supplier shipping to non-UK/non-EU customers
Sales to customers outside the UK and EU via a UK supplier are classified as exports from the UK. These sales are zero-rated for VAT, meaning the VAT charge to customers is 0%. However, they are still VAT-taxable and count toward your turnover.
In this situation, you only need to register for VAT in the UK if your company’s taxable turnover exceeds £90,000. Voluntary VAT registration is also an option.
EU supplier shipping to UK customers
If you’re an EU supplier shipping goods to UK customers, it’s essential to promptly register for VAT in the UK, irrespective of your taxable turnover. At the point of sale, you must apply the relevant UK VAT rate to your customers.
Additionally, as you’re making an EU supply and exporting goods to the UK, you’re required to register in at least one EU Member State. For these transactions, you’ll charge EU VAT at 0% and file a non-Union One Stop Shop VAT Return.
EU supplier shipping to EU customers
In this situation, where both the supplier and customers are within the EU, UK VAT isn’t applicable to the sales. Therefore, there’s no requirement to register for VAT in the UK or include these sales in your taxable turnover there.
However, it’s necessary to register for VAT in at least one EU Member State. You must charge the customer the appropriate EU VAT rate and submit a One Stop Shop VAT Return accordingly.
EU supplier shipping to non-UK/non-EU customers
If you have an EU supplier shipping goods to customers outside the UK and EU, UK VAT isn’t applicable on these sales. Therefore, there’s no need to register for VAT in the UK or include these sales in your UK taxable turnover.
Instead, you must register for VAT in at least one EU Member State. You’ll need to charge the customer EU VAT based on the rate applicable in the destination country within the EU, and then submit a One Stop Shop VAT Return accordingly.
Non-UK/non-EU supplier shipping to UK customers
If a supplier located outside the UK and EU ships goods to customers in the UK, immediate registration for UK VAT is required, regardless of your taxable turnover. You must charge the customer the relevant UK VAT rate at the time of sale.
Non-UK/non-EU supplier shipping to EU customers
In this scenario, no UK VAT is applicable on the sales. There’s no requirement to register for VAT in the UK or include these sales in your taxable turnover there.
However, you must register for VAT in at least one EU Member State. You’ll need to charge the customer the appropriate EU VAT rate and submit a non-Union One Stop Shop VAT Return.
Non-UK/non-EU supplier shipping to non-UK/non-EU customers
When both the supplier and customers are located outside the UK and EU, no UK VAT is applicable on the sales. Therefore, there’s no need to register for VAT or include these sales in your taxable turnover.
Managing VAT obligations for a UK dropshipping company becomes more complex when dealing with international customers and suppliers. While straightforward for transactions within the UK, challenges arise when engaging with foreign entities. Seeking guidance from a tax specialist early on is essential to ensure compliance and develop optimal tax strategies. The Startxpress team stands ready to support you throughout your entrepreneurial journey, providing expert assistance customized to your specific needs.
For more details, check out the Startxpress Help Center and Blog.
If you have any more questions or need further assistance, feel free to reach out to us via support@startxpress.io. Our team is here to support you every step of the way.
Related Articles
Was this helpful?
0 / 0