Dropshipping is a process for supplying a customer with the items they purchase.
Sellers don't keep items in stock. Instead, the seller passes the order and customer details on to the “dropshipping supplier”.
The seller pays the dropshipping supplier a fee, and keeps the leftovers from the sale price. The dropshipping supplier then organises the order for delivery and ships it out, fulfilling the order.
What are the pros and cons of dropshipping?
Dropshipping is easy to get started with, and usually quite cheap too. You don’t buy stock up-front, or worry about storage costs once it arrives. You can also sell whatever you like!
Just remember that you're the face of the sale. Any mistakes from your suppliers will still be your problem, as far as your customers are concerned.
It’s a competitive industry and profit margins can be low, too. It might also mean that multiple sellers are trying to make sales with the same products!
What does dropshipping mean for tax?
Running a dropshipping operation, like most business activities, has tax implications. You might need to consider VAT on your sales, income tax and Self Assessment on the money you make for yourself, and Corporation Tax if you operate as a limited company.
Upcoming VAT changes affecting dropshippers
A major reform of EU VAT for ecommerce businesses will affect UK dropshippers who sell to consumers in EU countries, starting 1st July 2021.
Distance selling and the OSS
There are new thresholds for distance selling, which affects the way businesses report the VAT on sales they make across borders, and a new One-Stop-Shop (OSS) for VAT.
From 1st July 2021 it’s the seller’s responsibility to collect the VAT at the Point-of-Sale (POS) if goods are imported into the EU by a consumer, and are worth less than €150. The VAT will be reported using the new Import One-Stop-Shop (IOSS).
The Import One-Stop-Shop (IOSS)
The seller or supplier marketplace will register for IOSS in just one EU country. They’ll use that registration to report VAT on items which are less than €150 and being imported by an EU consumer.
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