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: https://www.gov.uk/government/publications/changes-to-vat-treatment-of-overseas-goods-sold-to-customers-from-1-january-2021/changes-to-vat-treatment-of-overseas-goods-sold-to-customers-from-1-january-2021#:~:text=For%20imports%20of%20goods%20by,from%20anywhere%20in%20the%20world

Also check out this detailed explanation from UK tax authority: https://www.gov.uk/guidance/vat-and-overseas-goods-sold-directly-to-customers-in-the-uk#goods-that-are-outside-the-uk-at-the-point-of-sale

Full requirement on doing VAT returns: https://www.gov.uk/vat-returns
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 https://www.gov.uk/vat-rates 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: https://www.gov.uk/vat-registration/how-to-register
o Apply for EORI number: https://www.gov.uk/eori
o Sign in to HMRC here: https://www.gov.uk/send-vat-return#:~:text=Sign%20in%20to%20your%20HM,Making%20Tax%20Digital'%20for%20VAT%20.

(4) There is a deadline and penalty may apply if you fail to oblige. So please read the full requirement carefully https://www.gov.uk/vat-returns

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. We act as your supply chain and ship packages on your behalf. 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)

For packages without a VAT number, they are going through UK customs as usual for now. However, nor we or YunExpress can be responsible for any problems that might occur at custom inspection.

Therefore, we suggest our clients to provide us with their UK VAT number as soon as possible in case it is needed.

Comment below with any questions!

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