UK VAT Effects on Dropshipping in 2021 Post Brexit | How the VAT changes affect you and what to do

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Hey everyone,
Dayu here, from EcommOps
Are you a Shopify / WooCommerce dropshipper or eCommerce store owner selling to the UK? If so, you must have heard about the new changes in UK VAT rules after Brexit, starting from 1 January 2021.
In order to help you understand this issue and prepare properly for the upcoming changes, we researched through the UK HMRC regulations and came up with this video. We will help you understand the plain basics of who should do what in terms of UK VAT.
Check out this government issued summary of changes: www.gov.uk/gov...
Also check out this detailed explanation from UK tax authority: www.gov.uk/gui...
Full requirement on doing VAT returns: www.gov.uk/vat...
1. What is VAT and how is it calculated?
Value-added tax (VAT) is a system of indirect taxation on goods and services to final consumers. It is collected accumulatively at each stage of the supply chain.
The standard UK VAT rate is 20% on retail price. However, some goods and services may enjoy a 5% or 0% rate.
Check out www.gov.uk/vat... for more details
2. What changed in the new UK VAT policy?
1) For goods shipped to UK that are under £135 in value, the point at which VAT is collected is moved from the point of importation to the point of sale (therefore you as a storeowner, OR an online marketplace like Aliexpress).
2) The £15 low value goods VAT relief is cancelled. This closed a loophole that dropshippers and suppliers used before to avoid VAT by declaring all goods as under £15.
If you are selling to UK customers through an online marketplace (OMP) like Amazon or eBay, the platform is responsible for providing a VAT number and collect VAT. If you are selling directly to UK customers, then you are the one who is responsible.
3. Will dropshipping platforms like CJ Dropshipping and AliExpress charge VAT?
The answer is technically YES (Aliexpress has already started collecting VAT on UK orders). However, whether or how soon the platforms start doing this is at their own decisions. This means you as the dropshipper could potentially pay 20% more on product costs.
4. Will you pay double VAT if dropship from an online platform (CJ, Ali, Spocket, etc.)?
Unfortunately, this could be the case too. However, since VAT is calculated cumulatively, you can reclaim the supplier VAT with UK authority when filing your VAT tax return.
The downside here is that your cashflow will take a hit, since you pay for VAT first when you didn't need to.
5. How do direct sellers pay for VAT?
(1) Your invoices to UK customers need to show that VAT is charged besides retail price.
(2) VAT is calculated on prices of the goods only - minus shipping and other fees. Therefore, you might want to reconsider offering free shipping. See our calculation in the video.
(3) You submit a VAT return every 3 months online in your HRMC account. To log into that, you will first need to register for a VAT number and a EORI number.
o Register for VAT number: www.gov.uk/vat...
o Apply for EORI number: www.gov.uk/eori
o Sign in to HMRC here: www.gov.uk/sen....
(4) There is a deadline and penalty may apply if you fail to oblige. So please read the full requirement carefully www.gov.uk/vat...
6. Can I still send packages to UK without a VAT number?
For now, yes. But neither the courier or the supplier can be responsible for issues that might occur at custom clearance or compliance inspection. So you should apply for a VAT number ASAP if only just in case.
7. What is EcommOps’ plan for this?
Technically speaking we are not responsible for collecting VAT. Neither do we act as a point of sales, nor do the customers know of our existence. There should not be a double VAT if you work with us (we are still confirming this)
Join our FREE EcommOps Facebook group for more operations and logistics content:
/ ecommops
If you have more than 50 orders per day and are looking for the best in a fulfillment partner, please check us out here at:
www.ecommops.com

[@armauploads1034]

The text of the description below this video is EXEMPLARY! 👍

[@calvincrane]

There is no worry to not pay VAT to you. So long as none is charged or on the paperwork. You can be a foreign business with no laws forcing you to collect VAT because you are not retailing to the UK people.

[@aliecommerace4864]

"Merchants need to collect VAT on orders shipped to the UK below ￡135. However, if you’re a merchant using an Online Marketplace(OMP) to supply imported goods with a value below ￡135 to UK customers, the VAT liability will be shifted to the OMP ". I got this quote from shopify ,it stays merchant using an Online Marketplace(OMP) and didn't say "sell on OMP " does that mean if use aliexperss and pay them vat I am not responsible to collect vat from customers any more .]

[@chivers7510]

did you ever find the aswer to this

[@CC-zt7wh]

@@chivers7510 i’m also waiting for an answer on this

[@LostTheGaaaaaaame]

I was under the impression that the VAT I have to charge is calculated on the total cost of item, shipping and customs charge. :s

[@vvss958]

Informative video.. any update on EU countries tax changes that will affect on traditional dropshipping.

[@ecommops]

Not yet, it is still not 100% set and we'll release a new video once it is more clear

[@yozyls]

Do I need to pay Vat by myself if i use aliexpress as supplier to ship to uk, canada, australia, usa and europe(i live in uk) ?

[@jeankilpatrick2438]

As a new drop shipper (not VAT registered) paying VAT at the point of purchase and making a small profit, if eBay then collect the VAT too, how can this possibly be viable? Yet I still see lots of drop shippers! Am I missing something?

[@v.nicoara]

You are actually supposed to pay VAT for shipping and insurance as well, not just the product. Unless there is a VAT exception in some country where shipping is VAT free (such as books in the UK).

[@ecommops]

Not according to the current UK VAT regulations. However you can ONLY avoid VAT on shipping and fees if you separate it out on the customer's invoice. Eg if you don't charge shipping for your customers, then you have to collect VAT on the whole amount.

[@Euqirne29]

@@ecommops We have store where we do free + shipping. Do we need to charge VAT on shipping?

[@finlix]

You are talking about Import VAT, isn't it? But for dropshipping, if the value of consignment is less than 135pound, you only need to pay 20% at the point of sales, not at point of import(so no import vat)

[@yesitstkm]

Great video! Thank you for the clear explaination. Do you have an equivalent video of using your services to ship to the US or AUS?

[@victoriagreenwood6240]

Try baddie in business, she does US

[@TigranHakobyan]

Thanks for the video! One question that still is unclear for me is the following. Here is the scenario: - I have a UK LTD, but I am not a UK resident - My partner fulfillment center is in China (it's not dropshipping, we actually have inventory in the warehouse in China) - My store is on Shopify - People buy from my store on Shopify and the fulfillment center from China ships the items to the purchasers Question 1: If I SELL to UK customers, do I need to have a UK VAT number and pay VAT in the UK in that case? Question 2: If I DON'T SELL to UK customers, do I need to have a UK VAT number and pay VAT in the UK in that case? Question 3: If I DON'T SELL to UK customers but DO SELL to EU customers, do I need to have a VAT number in those EU countries and pay VAT in those countries? I hope someone can help me to figure this out. Thanks in advance!

[@ecommops]

Question 1: Yes Question 2: No, just make sure that your fulfillment company declares under the threshold value that would trigger VAT / taxes (this depends on the country and your fulfillment company should hopefully know Question 3: Technically not always as long as they declare under the value threshold. However different countries also have total sales thresholds after which in a year you are supposed to collect VAT / sales tax, but this is something you should work with an accountant on to confirm. Btw this will change again in about July with the EU VAT rules change, though its not 100% certain what the final details are yet. We'll make another video before then so look out for that

[@TigranHakobyan]

@@ecommops thank you so much for the detailed answer! Finally, someone was able to explain in an understandable way :) Thanks man!

[@faizanjahangir8989]

Amazing video btw! Thanks

[@ecommops]

Thank you too!

[@bet_big9917]

Drop shipping to me is selling for commission and we get to set what commission we want so that's a loophole ?

[@georgekanellopoulos433]

hi i try to learn traditional dropshipping with platforms. in case i sell on ebay or shopify and customer get charged the VAT. but dropshipping company that accomplish the delivery don’t know the vat that the recipient already paid. How can customs clearance will be made? these suppliers how can prove the VAT is already paid? or the recipient himself has to prove that paid the VAT?. what happen in this occasion or what can we do to avoid any complexities?

[@finlix]

Confused about Aliexpress.Is it an OMP or dropshipping platform? It's a Chinese company, why and how does it collect VAT for instance in the UK? @5:30 . Please can you clarify ?

[@desmondlim4883]

Thank you for the awesome video! I am living in Singapore and would like to dropship product from China to United Kingdom. Do I need to register with HRMC UK? I have my online store with shopify. Do I need to set up some tax payout in my ecommerce system? This is where I got confused because some articles said it is required. I hope you can provide better explanation? Hope to hear from you soon.

[@Parteatime1]

Great video thank you! I was under the impression that now the GDPR laws are in place we’re not allowed to keep customer details or invoices for more than 3 years... so would that affect keeping records for 6 years as stated in the video?

[@ecommops]

thats actually an interesting question. I am not sure. It's not uncommon to have conflicting regulations that add to confusion haha

[@Sugabullets]

What if you sell to America but are based in the UK and get your products from China? So it never enters the UK.

[@arnoldsnodgrass2953]

This is an excellent video and tallies with what I thought. However, what is the situation for a client of yours based in the UK who sells to an end customer in the EU? And what if the customer is outside the EU? (I heard that a UK seller is now required also to register for EU VAT and charge each country’s VAT amount. So would that mean the supplier company charging the UK seller UK VAT and the seller then charging the customer EU VAT, which may or may not be the same rates?!)

[@ecommops]

As of now these changes only apply for UK sales. Though in ~July the EU VAT laws might come in affect similar to the UK

[@arnoldsnodgrass2953]

@@ecommops Cheers.i look forward to a further explanatory video from you! 😀😀

[@zohaibmehmood3668]

I am trying to find the answer as well

[@ikbal2599]

A person residing in Qatar and the founder of a ltd company in uk and working as a seller on Amazon UK - Do I have to pay the vat from the beginning of the sale, or do I have to reach the amount of 85,000 pounds of income? ..waiting for your answer.

[@djameeludjam6490]

If i have llc company usa and i sell in un , i need to pay vat ?

[@MikeyTunes5439]

If I'm earning less then the £85000 threshold do I still need to be registered for vat for dropshipping in the uk or I'm I ok to not register until I earn more then £85000?

[@kidforzx692]

Working with a client who’s running a niche store how does the supply chain work? Do you have too have a whole warehouse of all the products or something or do you have too work with each product individually or? I’m just curious

[@ecommops]

We source each client's product completely separately from another, even if multiple are selling the same. We do not have a warehouse of products so actually act very differently than the traditional dropshipping model

[@joshpatterson5533]

Great video! I have a question. If I’m dropshipping a product that is in the UK ( where you select ship from in AliExpress ), do I still need to charge that VAT even though it is being kept in the UK and it’s the coming from China at the time?

[@monikawelchvocalcoaching]

I’ve been looking for an answer to the same question for weeks. If you find out anymore, please share! 🙂🌸

[@vvss958]

Check previous comments Dayu have already answered to similar question of Lee Wadsworth

[@abhinavyadav6685]

I live in india and a sole trader. Wish to start dropshipping to UK. I am trying to register for VAT but it is asking for organisation account and not personal. How should i register ?

[@juliusomira4757]

nice work

[@ecommops]

Thank you!

[@cameronhale-sanders8857]

I live in Canada, do I need to collect and register for a VAT number in the UK?

[@zainqureshi1086]

If i registered ltd in uk and buying products from uk based wholesalers and selling to uk based customer so do i need to pay vat and if i am no crossing the threshold

[@SD-rg5mj]

Hello could you give me some informations, my cie is french and I'd like to sell in UK

[@monikawelchvocalcoaching]

Thanks for this video! Super informative. Could I just ask one question, which nobody seems to be able to help me with, please? Im based in the UK and would like to dropship from Aliexpress warehouses based in the UK (by choosing ship from UK on aliexpress website) and also from some other UK based dropshippers to UK customers only. Do I still need to register for VAT in this case? Thank you again for this great video! 🌸

[@vvss958]

Yes you need to register for VAT as per explained by Dayu every POS need to collect vat on every transaction. Suggested to check in with an accountant

[@monikawelchvocalcoaching]

@@vvss958 thanks, though on the UK Gov website it says the following: You must register for VAT in the UK if you’re: - a UK seller selling goods as a business activity in the UK, and your business’s VAT taxable turnover is more than £85,000 a year - an overseas seller and the online marketplace provides you with the VAT details of a business customer So, it seems like I only have to register if I dropship from outside of the UK, but if I source products within the UK and sell to UK customers then I only need to register when I go over the threshold of 85K.

[@Balatonclo]

@@monikawelchvocalcoaching hi unfortunately due to Brexit there is no threshold anymore and that informations outdated you need to register to pay vat but keep at it👍

[@ecommops]

@monika technically if you have stock in the UK then this does fall into the old ruling (£85,000 a year threshold) However that being said aliexpress UK (or US etc) warehouse is more often than not just coming directly from China anyways using a fast special line they can pass off as local shipping. Its a tricky topic and I'd be wary of assuming you can get away from the POS VAT rule just because an ali seller claims its shipped from the UK

[@ProductProducer]

@@monikawelchvocalcoaching So after 1 year , dear Monika , is that true ? Did ebay asked you vat when reached 85,000 on a year? I 'm interesting too on an answer.

[@lofifog]

THANK YOU what about goods shipped to UK that are above £135 in value ?

[@ecommops]

Honestly, there is no clear regulations on this right now.

[@lofifog]

@@ecommops THANK YOU

[@ashleybellamy3354]

I sell products on shopify that are shipped from Europe to UK. Do I have to pay VAT and does the customer? And like you mentioned in the video about recovering VAT, could you automate that for better cash flow?

[@ecommops]

Yes you are supposed to collect VAT from the customer, and you pay the VAT to the office. No great way to automate it right now - the best is to try to work with a supplier who doesn't collect VAT from you so you dont have to worry about recovering it.

[@TheOnlyExoticNarwhal]

Is there a minimum sales threshold before I need to apply for VAT? I sell merch to the UK/EU but do not make much each year. Or do I still need to apply for a VAT number regardless of the amount of sales?

[@Balatonclo]

Exactly my question and do you need to be a registered business to collect and pay vat to the government? Great vid btw😊

[@Balatonclo]

As it used to be £85,000 before it was necessary

[@ecommops]

Yes now you technically do regardless of how much unfortunately

[@Balatonclo]

@@ecommops do you need to be a business to register

[@catchagrip.9468]

You'll need to register for VAT bud. No threshold for drop-shippers. You can claim the VAT back if your supplier is paying. But with many products arriving from overseas.. Good luck with that. VAT add 20% for UK. Either absorb it through raising prices or just taking the hit. The EU will be doing POS VAT from the 1st July.

[@leewads]

If I were to start dropshipping but wasn’t VAT registered, is it correct that I’d have to pay VAT on purchases from AliExpress but I wouldn’t have to charge it to my customers from my Shopify store until I’m VAT registered? I know this means I wouldn’t be able to reclaim VAT payments if I’m not registered yet

[@ecommops]

No, legally you are supposed to have a VAT number and charge VAT and pay it to the authorities.

[@leewads]

EcommOps and that is because I am buying from abroad and selling through my online marketplace? I have my own brand in the UK which ships from the UK and I don’t currently claim or charge VAT as under 85k, but I’m guessing it’s different for drop shipping?

[@ecommops]

@@leewads If you have your own stock in the UK then you should have been collecting and charging VAT even before this change. I'd advise you check in with an accountant

[@leewads]

EcommOps my turnover is under £85,000 so in the UK you don’t need to register. I think the rules are now different if you don’t hold the stock in the UK and you’re on online marketplace. It is putting me off start somewhat as no one seems to be that clear on what tax you should and shouldn’t be paying / collecting

[@PeteDrawsThings]

@@leewads I'm in the same position. Did you learn any more on this subject?

[@marcelo5748]

Very informative video. I have registered for VA, I have my VAT number and EOIR. Which of these has to be in the package and where? Are they still not asking for VAT number on packages?

[@ecommops]

Thanks! For direct from china lines like yunexpress, they are not asking for VAT nor EORI on the package itself

[@marcelo5748]

@@ecommops I'm currently using 4PX on all my orders. You think that eventually they will ask for it?

[@ecommops]

@@marcelo5748 as of now, there should be no sign of them asking for it. It could potentially change in the future though.

[@marcelo5748]

@@ecommops I see, let's see how it goes. The declared value of the order should include VAT or not? Meaning if the price of the product is 40 and the VAT is 8. Should we declare it for 40 or 48?

[@faizanjahangir8989]

When I set up a LTD company to sell via ecommerce, I'm now required to charge VAT. However, I have not reached my threshold yet. Does that mean I still need to register for VAT to get VAT number?

[@ecommops]

If you are not based in the UK there is no threshold anymore unfortunately, so you have to charge VAT on every sale technically

[@justaguyinwonderland]

@@ecommops so if you live in the uk you dont have to pay vat unless you reach your threshold or unless you are also selling to customer in the uk?

[@Balatonclo]

Do i need to register as a business to pay vat?

[@ecommops]

no, you should register vat regardless

[@Balatonclo]

@@ecommops thanks thats pretty tough on us as they expect us to register just to test products

[@hifzurrehman5311]

Amazon seller does not need VAT registration in 2021, now Amazon will charge itself VAT is right news or wrong news.?????????

[@ecommops]

Amazon deals with VAT for you, so you dont need to do it again

[@hifzurrehman5311]

@@ecommops Don't even need a VAT number?

[@hifzurrehman5311]

@@ecommops That means Amazon itself has VAT number, we do not even need VAT number.

[@ecommops]

@@hifzurrehman5311 Yup, Amazon just deals with it for you, so you dont need to worry about it at all

[@hifzurrehman5311]

@@ecommops ok bro thnkuhhhhhhh soooooooooooo soooooooooooooo soooooooooooooo soooooooooooooo soooooooooooooo much👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍👍

[@justaguyinwonderland]

I live in the uk (my business is registered in the uk) but i am selling to the USA or Canada? Shopify keeps asking me to enter my vat but im not sure how it will work can you offer any advice please?

[@ecommops]

If you are not selling in the UK then this video doesn't impact you. However we are not accountants so I can't give you advice on your specific situation. Best you speak with an accountant to be sure

[@justaguyinwonderland]

@@ecommops thank you

[@jaguppal187]

best to just quit the UK market