Dropshipping from China to UK VAT Tax implications

VAT Tax on Dropshipping from China to UK 

What Is Dropshipping?

Dropshipping is a very popular way of running a business if you do not have much capital for startup. By running a dropshipping business you do not have to pay for any stock upfront and you do not have to have large premises to hold the stock.

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How Does It Work?

You advertise a product for sale on your website and once someone buys it from you – you head over to the dropshipping wholesale website to purchase it. This third party receives the payment from you and they directly send the item to your customer. In order to profit from dropshipping you need to ensure you factor in the price of postage you will be charged and any vat or taxation.

 

Where are The Dropshipping Companies Located?

There are many companies that specialise in dropshipping and these are all over the world. You can purchased an item in the same country as you want the item shipping to a customer, or you can buy from a foreign country and have the item imported to your customer.

However, bear in mind that if you choose a dropshipping company in the UK there may be vat to pay. Whether there is vat to pay and also the rate of vat to be paid can vary. In fact, vat may also change once Brexit has been completed, although currently the UK is still trying to thrash out an exit deal with the other EU countries.

Import And Export Duty

If you are dropshipping an item from another country, such as China, into the UK those goods may be subject to import tax. Again, not all goods are subject to import taxation. Usually, if there is import tax on an item it is paid by the customer receiving the item, although you can register your business as the importer. If you do this you will be liable for the vat but it can be claimed back at the end of the tax year when you complete your accounts. This is the preferred option as you can be sure your customers are not going to complain at having to pay an extra charge to have the item delivered. You just need to be sure that the price you charge your customer covers all your costs and adds a bit of profit for you.

 

Customs and excise require a label to be added to the outside of a package with a description of what is inside and the price. This determines whether duty is payable and how much.

Importing Goods From The EU To The UK

All countries have different rates of tax and import duty. Therefore, you will need to educate yourself on the differences before selling to customers otherwise you may find yourself out of pocket.

What If No-one Pays The Import Tax?

If a product is subject to import duty then it will be stored until such time as the tax has been paid, whether that is by the customer or the business selling the item.

Dropshipping from China to the UK

Basic principle

Section 7(6) applies to goods whose supply involves their being imported into the UK from somewhere outside the EU. Effectively the place of supply is determined by who acts as the importer. So if the supplier imports the goods into the UK, the supply to the UK customer is treated as taking place in the UK and so the supplier may be liable to register for VAT here.

However, if the UK customer imports the goods, the supply is treated under section 7(7)(b)as taking place outside the UK.

Chain supplies

Goods imported from a third country may involve a chain of supplies. For example

  • A may supply the goods to B
  • B then supplies them to C, and
  • C in turn supplies them to D.

At some stage the goods are imported into the UK and so the place of each supply will depend on who acted as the importer.

Good Customer Relations

It is important that you make it clear to your customer whether there is any import duty to pay, otherwise your business may suffer.

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