VAT rules for dropshippers

In this article we'll provide an overview of the VAT rules for dropshippers. This will be of particular interest if you operate an e-commerce business.

What is dropshipping?

Put simply, Dropshipping is a retail fulfilment method where your e-commerce business  doesn't keep any produce in stock. Instead, when you sell a product, you purchase the item from a third party and then have it shipped directly to the customer. You never actually see or handle the product in question.

The main difference between dropshipping and a typical retail business model is that you don't hold your own stock. Instead, you purchase stock as and when required from a third party. This is usually a wholesaler or manufacturer who then fulfil orders. This method is used extensively by seller using online marketplaces like Amazon.

Where is the place of supply?

The VAT rules for dropshippers are currently governed by the VAT place of supply rules. In short, the place of supply of the goods determines the VAT treatment. We would mention these rules may change depending on the outcome of Brexit.

If you are dropshipping from outside of the EU into the UK, then the place of supply is deemed to be where the goods are shipped from. So for example, if the place of supply is China, VAT will not be due on the sale of the goods - though see below.

Goods imported into the UK from outside the EU

Whenever goods are imported into the UK from outside the EU Import VAT and duties will potentially apply. For more details on import VAT see here.

The person who is the importer on record is responsible for the import VAT. If it's your business then you'll be liable to pay the import duties and VAT. If it's your customer, then they will be responsible for paying any import duty and VAT

What about goods imported into the EU from outside the EU?

If you're selling goods on an online market place like Amazon or Ebay it's possible you'll make sales to customers to the EU as well. So what's the position there?

If goods are being delivered to an EU country from outside of the EU, then import VAT and duties are payable at the appropriate rate for the EU country concerned either by the customer or potentially by the business.  If the latter case applies, you should also be mindful as to whether the EU distance selling rules apply to your business.  

Just to reiterate, if your customer is the importer on record then they are responsible for paying any import duties and VAT.

Customs may hold back on releasing goods until the VAT has been paid meaning your customers may not receive their goods until they have paid the VAT.

Therefore we'd strongly recommend that you make this clear to your customers when they are purchasing from your website. This will hopefully ensure any negative feedback is kept to a minimum!

For more useful information, check out our Ebooks here.

And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at richard@tfaaccountants.co.uk.

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