The VAT on a dropshipped sale depends on the value of the consignment and on who imports the goods. For consignments worth £135 or less, the seller (or the online marketplace, if one facilitates the sale) charges UK VAT at the point of sale and no import VAT is collected at the border. Above £135, import VAT and any customs duty are paid by whoever imports the goods, and whether your own sale is taxed in the UK depends on whether you are that importer.

How does VAT law see a dropshipped sale?

In a dropshipping model you take the customer’s order and payment, and an overseas supplier sends the goods straight to the customer. You never hold stock. For VAT the question is where your sale to the customer takes place, and section 7 of the VAT Act 1994 answers it for goods that move into the UK as part of the sale:

  • Section 7(5B): goods are supplied in the UK where the supply is made in the course of business, involves the goods being imported, the intrinsic value of the consignment is not more than £135 and it contains no excise goods.
  • Section 7(6): above that, goods are supplied in the UK where the supplier is the person by whom, or under whose directions, they are imported.
  • Section 7(7)(b): otherwise, goods removed to the UK are treated as supplied outside the UK.

So the two facts that decide the answer are the consignment value and who acts as importer. Get those right before thinking about anything else. This page deals with goods sent to customers in Great Britain; Northern Ireland has its own rules, covered in VAT and goods in Northern Ireland.

What happens when the order is £135 or less?

Where you sell direct to the customer (not through a marketplace), you charge UK VAT at the point of sale and account for it on your VAT return as output tax, unless the customer is a UK VAT registered business that gives you its VAT number. In that case you need not charge VAT; you can note on the invoice “reverse charge: customer to account for VAT to HMRC”, and the business customer accounts for it. HMRC says to do this you need to know the precise nature of the goods to apply the right rate, be registered for VAT, and keep records of the goods sold.

The value is the intrinsic value of the whole consignment, meaning the price of the goods excluding transport and insurance (unless included in the price and not shown separately) and excluding other identifiable taxes. If one order is shipped in one consignment, the items are added together. The rules do not apply to consignments containing excise goods. Low value consignment relief, which used to exempt goods worth £15 or less from import VAT, has been removed in Great Britain, so cheap items are not VAT free.

What happens when the order is over £135?

Normal import rules apply: import VAT, and any customs duty, are charged when the goods enter the UK. Who pays depends on how the delivery is arranged.

If the customer is the importer

If neither you nor anyone acting under your directions imports the goods, section 7(7)(b) treats your sale as made outside the UK, so you do not charge UK VAT on it. The customer pays the import VAT and any duty to the delivery company before the goods are delivered or when they collect them. That is lawful, but customers who were not warned often refuse delivery or ask for refunds, and you cannot reclaim VAT that the customer paid.

If you import the goods

If you, or a customs agent acting for you, import the goods on a delivered duty paid basis, section 7(6) treats your sale as made in the UK. You charge UK VAT to the customer and you pay the import VAT and duty on entry. If you are VAT registered you can account for import VAT through postponed VAT accounting, declaring and reclaiming it on the same return, and you can reclaim import VAT on goods you own as input tax under the normal rules. You need an EORI number to import goods.

Import VAT is calculated on the customs value plus incidental costs such as transport and insurance up to the first UK destination, plus any duty. That is a wider base than the sale price you used for the £135 test.

Does it change if I sell through an online marketplace?

Yes, for low value consignments. If an online marketplace facilitates the sale and the goods are imported in a consignment of £135 or less, section 5A of the VAT Act 1994 makes the marketplace liable to charge and account for the VAT, whether or not you are established in the UK. Your own deemed sale to the marketplace is treated as made outside the UK. Over £135, the normal import rules described above apply. If you are an overseas business holding stock in the UK, a different rule applies; see online marketplaces and overseas sellers.

Do I need to register for VAT?

It depends where your business is established.

  • UK established dropshippers count their UK taxable supplies, including sales of £135 or less that section 7(5B) treats as made in the UK and delivered duty paid sales, toward the £90,000 VAT registration threshold. Sales treated as made outside the UK under section 7(7)(b) are outside the scope of UK VAT, so they are not taxable supplies in the UK. Below the threshold you may still register voluntarily.
  • Overseas established dropshippers are non established taxable persons. There is no threshold: you must register if you make taxable supplies of any value in the UK, which includes selling consignments of £135 or less direct to GB customers.
  • B2B only sellers. A seller that only sells goods located outside the UK at the point of sale to UK VAT registered businesses does not have to register for that reason.

Once registered, the normal VAT invoice requirements apply and records, including VAT invoices, must be kept for 6 years from the date of sale.

Can you show how this works in practice?

Illustration only. A UK dropshipper, VAT registered, sells three orders to consumers in England. The goods ship from a supplier in Asia. The standard rate of 20% applies.

Order VAT treatment
Lamp, price £100 plus £20 VAT, shipped as one consignment Intrinsic value £100, so £135 or less. The dropshipper charges £20 VAT at checkout and enters it as output tax. No import VAT at the border.
Chair, price £300, delivered with the customer as importer Sale treated as outside the UK. The customer pays import VAT and any duty to the courier. The dropshipper charges no UK VAT and reclaims nothing.
Chair, price £300 plus £60 VAT, delivered duty paid Sale made in the UK. The dropshipper charges £60 VAT, pays import VAT on entry (or uses postponed VAT accounting) and reclaims it as input tax because it owns the goods.

The same lamp sold through a qualifying marketplace would have the VAT charged by the marketplace, not the dropshipper.

What are the common mistakes?

  • Assuming no VAT because the supplier is abroad. Sales of £135 or less to GB customers are UK supplies and VAT is due.
  • Testing each item instead of the consignment. Several items shipped together are valued together.
  • Reclaiming import VAT the customer paid. Only the importer that owns the goods can reclaim it.
  • Unclear delivery terms. Your website and supplier terms should make clear who imports the goods, because that decides who owes the import VAT.
  • Flat Rate Scheme confusion. Marketplace sales where the marketplace is liable for the VAT are excluded from Flat Rate Scheme turnover; see the VAT Flat Rate Scheme.
  • Not checking business customers’ VAT numbers. Only skip charging VAT on a low value sale if the customer has given a valid UK VAT number, which you can verify online.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.