Dropshipping adds a layer VAT complexity most standard guides skip: your supplier, your stock location, and your customer can all be in different countries at once. Here's how it actually breaks down.
Last updated: June 2026
Dropshipping doesn't get a special VAT threshold — you register once your combined UK taxable turnover exceeds £90,000 in any rolling 12-month period, exactly like any other retail business. Your taxable turnover is based on the price your customer pays you, not the (usually much lower) price you pay your supplier or the margin you actually keep. A dropshipper selling £150,000 of goods at a 15% margin has £150,000 of taxable turnover, not £22,500.
This is the simplest case: the goods never cross a border, so the normal UK VAT rules apply exactly as if you held the stock yourself. Once registered, you charge 20% VAT to your customer and can reclaim VAT on what your supplier charged you (if they're VAT-registered and invoice you correctly).
This is where dropshipping gets genuinely complicated. If your supplier ships a parcel directly from, say, China to your UK customer, that's technically an import into the UK, and import VAT rules apply based on the consignment value:
If you use a UK-based supplier or wholesaler who is VAT-registered, they'll charge you VAT on their invoice, which you can reclaim once you're VAT-registered yourself. If your supplier is based overseas and not required to register for UK VAT, they typically won't charge UK VAT on their invoice to you — but you may still owe import VAT depending on the consignment value and who's the importer of record, as above.
If you're a UK-based dropshipper selling to customers abroad, and the goods ship directly from your overseas supplier to that overseas customer (never touching the UK), this is generally outside the scope of UK VAT entirely, since the goods never enter the UK. However, the destination country's own import VAT and consumer protection rules will likely apply to your customer, and marketplaces you sell through may have their own deemed-supplier VAT collection rules for that country.
The sale price — the full amount your customer pays you. Your margin (sale price minus supplier cost) is irrelevant to the VAT registration threshold, which is based on turnover, not profit.
Generally no, if you're simply buying from a foreign supplier and reselling — you're a customer of theirs, not conducting a taxable activity in their country. VAT registration obligations relate to where you're making taxable supplies to customers, not where your supplier happens to be based.
It depends on your supplier's shipping terms and who is named as the importer of record. This should be agreed and clear before you start selling a product, since customers who unexpectedly receive a customs bill are a common source of complaints and refund requests.
No, generally not for your own store — Shopify and similar platforms provide tools to calculate and display VAT, but you remain responsible for registering, charging correctly, and filing returns. This differs from selling through a true marketplace (Amazon, eBay), which may act as deemed supplier in certain cases.
Often not, since retail/dropshipping businesses typically have real, ongoing reclaimable input VAT (supplier costs, platform fees), which the Flat Rate Scheme generally doesn't let you claim back separately. See our Flat Rate Scheme guide for the full trade-off.
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