UK drop shipping: the essentials to starting an ecommerce business

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Are you currently located in the UK? Have you ever wanted to start an online business but didn’t know where to start? Whether you are an experienced entrepreneur or you are just starting your way, it is obvious that the digital revolution is taking over the world at an incredible pace. It can be seen in the emergence of the ecommerce market that is growing more rapidly every year. So, the only thing stopping you from starting a drop shipping business in the UK can be the lack of knowledge. In this article, we will try to cover the basics of starting a drop shipping UK business.

Drop shipping can be a simple and cost-effective way to start an ecommerce business. It is a business model where you sell the products without even having to store them or buy them in bulk in advance. Instead, they are stored, managed, and shipped to the customer by your supplier. Though it sounds easy, some business issues should be discussed with regard to your geographic location.

Are there any fees or taxes I should be aware of? Where and how can I find a supplier? And are there any underlying potential problems? These are probably the most frequently asked questions that we will address down below.

Drop shipping business registration in the UK

Most newcomers and inexperienced entrepreneurs have one question - do they need to register their drop shipping business in the UK?

The answer is yes. If you want to avoid any legal repercussions, you should register your business. It’s actually fairly easy to accomplish.

In the United Kingdom, there are 3 types of business structures:

  • Sole Trader
  • Partnership
  • Limited Company

Be sure to check out every alternative for yourself, and weigh in on the option that is best suitable for you. However, in our opinion, the best option is to choose the Sole Trader option. All that you need to do to set it up is to register for and file your Self Assessment tax return.

Where and how to find the best suppliers for drop shipping in the UK?

One of the most important aspects of any drop shipping business is a careful and thoughtful choice of suppliers as they are essential for your business success.

Things like the product’s quality, delivery arrangements, customer satisfaction, etc., depend on the suppliers you work with.

You can find many various supplier databases on the interwebs. The problem you might encounter, however, is the list of requirements you’ll have to follow from these databases’ owners. Sometimes it's simply not worth it. Don’t worry though! We have a solution.

For any dropshipping entrepreneur, a great source for suppliers is AliExpress. This major online retail platform has hundreds of thousands of sellers who are open to cooperating with dropshippers.

If you’re worried about the delivery times from China, don’t be. Numerous AliExpress sellers have warehouses that are located everywhere around Europe. For example, they can arrange shipping from the Czech Republic, France, Germany, Italy, Poland, Spain, and many more destinations. As you can see, many of these countries are close to the UK, so you can expect short delivery times.

What should I know about the taxes?

Like many other first world countries, the United Kingdom has a complex tax system. It will be difficult to explain everything in full detail, as it deserves its own separate article. So, we will try to cover it in a percursory manner.

There are two types of taxes every drop shipping UK entrepreneur is expected to face.

  • Sales tax

In essence, the sales tax, or as it is called in the EU, the Value Added Tax (VAT), is a business tax that is levied by the government on sales of goods and services. It is additionally placed on the product’s price, which is collected and passed to the government. In the UK, the VAT rate is 20%.

Keep in mind that every country in the EU has its own VAT rate. Furthermore, every country has its own threshold you need to reach before it can charge VAT. In the UK, your store needs to reach a revenue of £70,000, before VAT can be charged.

  • Income tax

This is the tax the government requires you to pay for your earnings. The tax system in the United Kingdom is progressive, which means the more you earn the more the tax rate is. To be more precise, it can be divided into 4 bands, and each one has its own tax rate.

  • 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, when your dropshipping store takes off and starts bringing you an increasing income, be thoughtful and careful about your earnings.

What else to know about drop shipping in the UK?

What else should you be aware of while drop shipping in the UK?

One aspect that should be brought to your attention is that United Kingdom residents have a low limit on purchasing online items from a country outside of the European Union. Customers whose orders are equal to or less than £15 can shop tax-free.

Therefore, you should take into consideration that if your supplier is located outside the EU, your products can be a subject for additional fees. This can result in your customers having to make extra payments while receiving their orders.

To avoid any misunderstandings and complaints, be sure to let your UK customers know about the possible additional expenses they might encounter.

Now that you know the requirements and limitations of drop shipping in the UK, nothing is stopping you from establishing and maintaining your own online business. Furthermore, nothing is stopping you from creating an online store that’s globally accessible. You are not limited to only the UK: with the drop shipping model, you can sell your products internationally. Simply find a niche to your liking, thoroughly research the products and the suppliers, create an online store, and you are ready to begin your drop shipping journey.

Hopefully, you found this article informative and insightful. With the drop shipping model, you have the opportunity to create your own business with almost no extra investment. We wish you the best of luck in your online ventures.