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. If any of your suppliers or customers are located outside of the UK, you may also need to register for VAT in one or more other countries, regardless of your turnover. With each registration, you’ll receive a VAT number that you must display on your website and invoices.

The VAT rules for dropshipping companies are often more complex than those applicable to standard retail businesses. This blog provides an overview of the different VAT requirements, depending on where your customers and suppliers are based. This should help you determine if you need to register for VAT, and where.  

VAT registration requirements for your UK dropshipping company

The VAT position and requirements are relatively straightforward if your online store/website, suppliers, and customers are all UK-based. In this scenario, you only need to consider UK VAT. However, this is not always the case given the nature of dropshipping. 

Things can get complicated when dealing with customers and suppliers outside of the UK. This can create a variety of situations in the logistics chain between the UK dropshipping company, the supplier, and the end consumer. And with each situation, there may be 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 key to working out 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.

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The One Stop Shop scheme is the better option if you have customers in different EU countries. It’s valid for declaring and paying all VAT you collect from customers throughout the EU, drastically reducing your administrative burden.

To help you work out your VAT obligations, look through the different combinations of supplier-to-consumer geographical relationships outlined below. These should make it easier to determine your UK company’s VAT obligations.

UK supplier shipping to UK customers

This is the simplest scenario, where a dropshipping company, supplier, and customer are all situated in the UK. 

Under these circumstances, you need to register for VAT if your total VAT-taxable turnover for the last 12 months was more than £90,000. However, voluntary VAT registration is still available if your turnover is below that amount. 

Once registered, you must charge the applicable UK VAT rates on all taxable goods you sell to customers via 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 when your company’s taxable turnover exceeds £90,000. Voluntary VAT registration is also available.

Sales to EU customers via a UK supplier are classed as exports from the UK, so they are zero-rated for VAT. This means the UK VAT charge to customers is 0%, but the sales are still VAT-taxable and count toward your turnover.

The EU VAT rules are different in this situation. You need to 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 classed as exports from the UK. These sales are zero-rated for VAT, which means the VAT charge to customers is 0%. However, the sales are still VAT-taxable and count toward your turnover.

In this situation, you need only register for VAT in the UK if your company’s taxable turnover exceeds £90,000. Voluntary VAT registration is also available.

EU supplier shipping to UK customers

If you have an EU supplier shipping goods to UK customers, you must register for VAT in the UK immediately (regardless of taxable turnover). You will need to charge the customer the applicable UK VAT rate at the point of sale.

Since you are making an EU supply and exporting to the UK, you must also register in at least one EU Member State. You need to charge the customer EU VAT at 0% and submit a non-Union One Stop Shop VAT Return.

EU supplier shipping to EU customers

In this scenario, where both the supplier and customers are in the EU, there is no UK VAT due on the sales. You don’t need to register for VAT in the UK, or include these sales in your taxable turnover. 

However, you must register for VAT in at least one EU Member State. You’ll also need to charge the customer the applicable EU VAT and submit a One Stop Shop VAT Return.

EU supplier shipping to non-UK/non-EU customers

If you have an EU supplier shipping goods to customers outside the UK and EU, there is no UK VAT due on the sales. You don’t need to register for VAT in the UK, or include these sales in your taxable turnover. 

However, you’ll need to register for VAT in at least one EU Member State, charge the customer EU VAT based on the rate applicable in the EU destination country, and submit a One Stop Shop VAT Return.

Non-UK/non-EU supplier shipping to UK customers

When a supplier based outside the UK and EU ships goods to customers in the UK, you must register for UK VAT immediately (regardless of taxable turnover). You will need to charge the applicable rate of UK VAT to the customer at the point of sale.

Non-UK/non-EU supplier shipping to EU customers

In this situation, there is no UK VAT due on the sales. You don’t need to register for VAT in the UK, or include these sales in your taxable turnover. 

However, you must register for VAT in at least one EU Member State. You’ll need to charge the customer the applicable 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 based outside the UK and EU, there is no UK VAT due on the sales. You don’t need to register for VAT, or include these sales in your taxable turnover. 

Thanks for reading

The VAT obligations for a UK dropshipping company are relatively simple if your customers and suppliers are also situated in the UK. However, the rules and requirements can be complex and burdensome when selling goods to customers in different countries and using foreign suppliers.

To ensure compliance and work out the best tax strategy for your dropshipping operation, it’s important to seek professional help and guidance from a tax specialist at the earliest opportunity.