Come 1st January 2021, numerous changes are coming to UK VAT that will have a significant impact on your e-commerce business. Agility is an essential part of being an entrepreneur, and Launchese can provide you with the information you need to stay on top of changing UK VAT regulations. This article will discuss the changes taking place and what you need to do right now to stay in compliance.
Dropshippers Will See a Change in How VAT is Calculated
Instead of imposing VAT on items when they are imported into the UK, you will now need to pay VAT at the point-of-sale (POS). Whether your business is in or outside of the EU, this new rule still applies to you. For companies that sell via online portals like Shopify, your store payment gateway is your POS. However, you will likely not be able to add VAT at checkout.
ACTION TO TAKE NOW: Adjust your listed sales prices to incorporate VAT. To calculate the new prices, divide your current sales price by 6. For example, if the current price is £12, divide it by 6, and you will get £2. This means your product is now being sold for £10 + £2 VAT.
VAT Registration for Dropshippers is Changing
The old threshold of £85,000 for VAT registration has been eliminated. If you are selling directly to UK customers (not via an OMP), you need to apply for VAT registration, regardless of sales turnover. This applies to both companies within the UK and overseas businesses.
ACTION TO TAKE NOW: If you have not already done so, you need to apply for VAT registration on 1st January 2021.
Examples of New 2021 UK VAT Laws for Dropshippers
A few quick examples of how the new UK VAT laws may affect your dropshipping business:
- UK Suppliers to UK Customers: If your business is VAT registered, collect VAT at POS. Check here for the UK VAT rates. If your supplier is VAT registered, you can reclaim VAT on your UK VAT return.
- UK businesses can still register for VAT when the taxable turnover reaches £85,000.
- Non-UK businesses must register for VAT regardless of the turnover threshold.
- UK Suppliers to EU and Non-EU Customers: Sales to EU customers will now be considered exports from the UK, and you are not required to collect VAT.
- UK businesses can still register for VAT when the taxable turnover reaches £85,000.
- Non-UK businesses must register for VAT regardless of the turnover threshold.
- EU VAT: The importer must pay VAT upon import until 30th June 2021. Beginning 1st July 2021, EU VAT will be collected at POS. You will be required to register in at least one EU state and submit a non-union OSS Return.
- EU Suppliers to UK Customers: If your business is VAT registered, collect VAT at POS. You will not be able to reclaim the VAT from EU suppliers on your UK VAT return.
- EU Suppliers to EU and Non-UK Customers: You do not need to collect UK VAT.
- Non-EU and Non-UK Suppliers to UK Customers: You will need to collect VAT at POS and be registered for UK VAT starting 1st January 2021.
While this all may seem a little confusing, you don’t need to fret. If you already dropship or plan on dropshipping to UK customers, just be sure to register for UK VAT and adjust your listing prices immediately. Launchese users get premium service from our partner Drophippo.
For more information on how the UK VAT changes affect you, review the HMRC’s VAT guidelines and the EU’s VAT guidelines. Just remember that while it may be a lot of work to manually change the prices of your products, the costs involved with avoiding paying UK VAT will be much worse.
REGISTER NOW
Launchese.com can help you step by step to register your VAT Number in the UK and start using it with your business. Cost of registration is £39.99 + VAT ($54.99 + VAT) Please reach our customer service here.
If you need more details about the VAT Registration Service, please email us at [email protected] , our support team will guide you through the process.
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