AliDropship Blog

Get marketing tips, tricks and dropshipping inspiration right into your inbox!
Sign up today not to miss out a single post:

5 Dropshipping UK Questions You Wanted Us To Answer

By Andrey Y.
September 08, 2020

What does it take to start dropshipping to the UK and what pitfalls should you expect?

Want to start your online business in the UK? Interested in selling goods to this country? In this article, we’re going to give you the answers to the most burning questions about UK dropshipping!

The UK is the home of progress. It is the country that once turned the tide and changed the world once and for all.

Indeed, the industrial revolution began exactly in Great Britain and spread around the globe at breakneck speed.

Today, the digital revolution is taking over the world at an even greater pace. And obviously, the UK can’t stand aside while it’s happening.

There are close to 70 million people living in this country, all the necessary civil liberties and a stable and fast Internet connection. In other words, Great Britain is a great market for ecommerce entrepreneurs.

The only thing that can keep you from starting your UK dropshipping business is a lack of information.

To fill that gap, we’ve decided to answer the most commonly asked questions about UK dropshipping.

So, let’s start!

Disclaimer: This article reflects the political situation in the EU and the post-Brexit business environment as per September 2020. We strongly recommend that you consult your local lawyer and get expert legal advice if you’re looking for more relevant data.

#1 Do I need to register my dropshipping business in the UK?

This question bothers most UK-based dropshipping newcomers.

And the short answer is yes. You do need to register your online venture in the UK if want to get around any legal consequences. The good news is, it’s not a big problem.

There are three basic business structures in Great Britain:

  • Sole Trader
  • Partnership
  • Limited Company

If you want to figure out what each of them implies, you can easily find the necessary info online. Yet, I’ll take the liberty of saying that the most suitable option for dropshipping store owners is to become a sole trader.

It’s really easy and fast to set up this business structure and operate it. You just need to register with HM Revenue & Customs for self-assessment and tax returns and you’re good to go.

#2 How can I find the best suppliers for UK dropshipping?

It’s hard to downplay the importance of reliable dropshipping suppliers for your business success.

The quality of the products you sell, your customers’ satisfaction and many other things depend on the suppliers you cooperate with. So, looking for a credible business partner could be a real pain in the neck for online entrepreneurs.

You can find many companies offering dropshipping service to suppliers’ databases on the Internet. However, it can be quite difficult to team up with such suppliers.

Usually, they have a list of requirements you need to live up to. Aside from that, there could be some legal procedures you have to undergo that are too burdening for newcomers.

That’s why AliExpress is a perfect solution for dropshipping entrepreneurs. This way, you don’t need to comply with any requirements to start selling the goods. All you need to do is install special software, choose trustworthy AliExpress suppliers and add their products to your online store.

Another common issue related to UK dropshipping is delivery time. As of now, shipping from China to the United Kingdom with free delivery options and even a number of paid options takes 20-50 days. A number of AliExpress suppliers offer faster shipping options, but in these cases delivery can cost up to $50. Considering that dropshipping expensive goods is much more difficult than selling affordable ones, these options can hardly be viable.

However, the long shipping time from China is not a big problem. Moreover, you can easily reduce it!

Many AliExpress sellers have warehouses in Spain, Germany, Italy, Poland, Czech Republic and France. All these countries are close at hand to the UK. Such options are often free and take about two weeks, which is much faster than other alternatives. So, you can easily find these suppliers and speed up the delivery.

Screenshot of AliExpress search page where you can look for products that can be delivered from particular countries - Spain, France, Czech Republic, Italy, Poland and Germany

Even if you can’t find faster shipping for products you want to dropship and have to use standard options, make sure you notify customers of the delivery time. Otherwise, you’ll have to deal with a lot of complaints from clients who didn’t expect to wait for so long.

#3 What taxes do I need to pay when dropshipping in the UK?

The United Kingdom, as many other developed countries, has a complex tax system. And it’s hard to cover the whole issue in one article.

Yet, there are four main types of obligatory payments every UK ecommerce entrepreneur has to deal with while dropshipping in the UK.

  • Income tax
  • Sales tax
  • VAT on products
  • Customs Duty

Income tax

Income tax is a tax that UK government imposes on your earnings. In other words, it’s the share of your income you must pass to HM Revenue & Custom.

Great Britain has a progressive tax system. That means that your income can be divided into four parts called bands. And each band has its own name and tax rate. Here they are, according to the UK government’s official website:

  • Personal allowance: 0% for your income up to £12,500
  • Basic rate: 20% – £12,501 to £50,000
  • Higher rate: 40% – £50,001 to £150,000
  • Additional rate: 45% for the income over £150,000

So, you pay different percentage from different parts of your income. For example, if you earn £65,000, you pay nothing for the first £12,500, 20% (£7,500) for the next £37,500 you’ve made, and 40% (£6,000) for the rest £15,000 of your income. The total sum you need to give for your £65,000 is £13,500.

Besides, if you live in Scotland, you must pay your taxes to the Scottish government, which sets slightly different bands to tax your income. You can see them below:

  • Personal allowance: 0% for your income up to £12,500
  • Starter rate: 19% – £12,501 to £14,549
  • Basic rate: 20% – £14,500 to £24,944
  • Intermediate rate: 21% – £24,945 to £43,430
  • Higher rate: 41% – £43,431 to £150,000
  • Top rate: 46% for the income over £150,000

Sales tax

The second type of taxes that can confuse UK dropshipping entrepreneurs is sales tax or, as it’s called in the EU, Value Added Tax (VAT).

In short, you include the amount of VAT in your product prices to collect it and pass to the government. Every EU country has its own VAT rate. For instance, it’s 20% in the UK, 23% in Poland, 21% in Spain and so on.

So, if you’re a UK online entrepreneur and sell your goods to UK customers, you simply register for VAT in Great Britain and add 20% to your product prices. But if your clients are from Poland, you need to collect VAT for Poland’s government, which stands at 23%.

Too complicated?

Ok, we’ve got some great news for you then. Until your online store picks up enough steam and you’re able to hire a good accounter, you can put collecting sales taxes on hold.

Every EU country has its own threshold you need to reach before starting to charge VAT.

For example, the revenue UK customers bring you has to be £70,000 before you need to register your business for VAT there. Dutch clients should spend €100,000 on your products. And in Belgium, the threshold is €35,000.

VAT on products

As you can see it from the official information on tax and customs, this type of tax is charged on the products that are imported to the UK from any countries outside of European Union. So, it’s applicable to you if you’re selling AliExpress products to the UK residents.

It’s 20%, too – but there’s good news! If the total cost of the imported product (together with its shipping cost) is lower than £15, you don’t have to pay anything.

Here, only the original (i.e. AliExpress) cost is taken into account. So, let’s say, if an AliExpress seller asks £8 for a product plus £2 for its shipping, the total cost is £10 – meaning that you don’t need to pay the tax while importing this product even if you’ve actually sold it to your end customer for £20.

Customs Duty

Let’s take a closer look at the same Tax and Customs section.

As you can see, when you’re importing products from outside the UK, you need to pay Customs Duty, too (2,5% on average) – but only if the total cost of the package plus shipping is above £135. If the total package cost is lower than £135, you won’t be charged Customs Duty, which is a relief!

Please note: the information we give you on tax requirements and regulations cannot be considered as legal advice. To handle your taxes properly in full accordance with the country law, we recommend you consult your local lawyer.

#4 Is there anything tricky about UK dropshipping?

As you can see, AliExpress dropshipping in the UK doesn’t pose any serious problem.

Yet, there is something you should take into account. Great Britain has a very low limit on buying goods online from non-European Union countries. To shop tax-free, the value of your purchase mustn’t exceed £15.

So, if you sell products to the UK and your suppliers are located outside the EU, your goods can be a subject for some additional taxes and duties. Thus, your clients can face some extra charges while receiving their packages.

To keep your customers’ anger at bay and avoid a misunderstanding, you should let your UK clients know about the possible fees they could encounter. Or, as we mentioned before, you can find AliExpress suppliers that store their products in Europe and resolve the problem.

 

#5 What about dropshipping to other countries?

Unlike many other business models, dropshipping is easier to start and run. But there are other features that make it so great.

One of them is the ability to sell product to any country you want or to several countries at once. You dropshipping store doesn’t have to be confined to UK customers. With AliExpress sending goods to almost any destination on the planet, you can sell internationally.

You can easily find an AliExpress supplier that has warehouses in Europe and sell your products to any EU country. As we mentioned, your customers won’t face any unexpected payments.

You can also successfully target such countries as the USA and Australia. AliExpress sellers store their goods there as well as in Europe.

If you choose a country like Canada, which has a low limit on online purchases ($20), you should warn your clients in advance about the extra fees they may face. However, there is some loophole in the case of Canada.

In 2018, the USA and Canada made a new trade deal. And now, Canadian customers can buy online up to $150 from the United States and pay no additional taxes.

So, if you choose an AliExpress seller with a warehouse in the USA, you can make good use of that.

We hope this article will help you get your head around UK dropshipping and start your online business. If you have more questions, please leave them in the comment section below. We’re always happy to lend you a hand.

avatar
By Andrey Y.
Andrey has just joined AliDropship team. He’s exploring dropshipping business from the very beginning. And, he’s going to share with you the most essential things newcomers need to know.
7 Comments
Martin Hamon December 12, 2019 13:30:34

thankyou for the information you have sent me it is really useful,l I would just like to make sure that I have interpreted it correctly
1 II don’t need to register for V.A.T until my store gets close to £70.000.
2 I don’t need to contact the income tax and register as a sole trader until my store is nearing £12500.
If I am correct in both of these areas things are looking good!
could you please let me know if I am correct and would be able to set up an online store just one other thing if I am selling in the uk for example would customers be able to pay by debit, visa and credit card or even Pay Pal
regards martin

Olga L. December 16, 2019 7:41:40

Hi, thank you for your interest! Our dedicated team member will get in touch with you soon.

H Singh May 11, 2020 1:25:02

Hello Martin, I am in an exact startup situation as you. Fid you manage to get clarification on the VAT and TAX issue as per your comment? These were the two points:

1 II don’t need to register for V.A.T until my store gets close to £70.000.
2 I don’t need to contact the income tax and register as a sole trader until my store is nearing £12500.

Giovanni battimiello July 12, 2020 15:55:33

hello I’m still learning and not ready to start . so we will need an accountant to simplify tax and v.a.t?
thanks

Olga L. July 13, 2020 6:46:46

Hi, thank you for your interest!
You may need to consult a tax specialist once, before you start the business, but it’s not necessary to hire an accountant on a permanent basis.

Awwej October 4, 2020 12:33:59

HI, What if drop shipper is in India and (registered in india) willing to sell UK customers? How Registration and taxes apply in that case?

Olga L. October 5, 2020 7:09:32

Hi, thank you for your question!

From the experience of one of our clients, Asif from India, we know that he pays ITR and GST. You can read his whole story and comments here: https://alidropship.com/dropshipping-india-success-story/

He also runs a thread on AliDropship forum: https://forum.alidropship.com/threads/a-little-bit-about-me-and-my-dropship-journey.2341/ – feel free to read it to learn more about other aspects of dropshipping in India!

Leave a comment