Multi-channel

VAT across marketplaces when you sell into the UK and EU

VAT is the area where dropshippers most often discover, late, that their profit calculation was wrong. The rules are not impossibly complex, but they depend on facts about the goods that sellers do not always track.

This is general background, not tax advice. The specifics of your situation need an accountant who knows your numbers.

Three facts determine the treatment

1. Where the goods physically are when the sale happens
2. Where the buyer is
3. The value of the consignment

A dropshipper is goods are usually outside the destination country at the point of sale, which puts most orders into the import regime rather than the domestic one. That is the crucial distinction and the one people skip.

Marketplace-collected VAT

For many low-value imported consignments sold to consumers, the marketplace is obliged to collect the VAT and account for it. That is genuinely helpful: it is handled, and it should not appear in your own VAT return as output tax.

The mistake is assuming this applies to everything. Above certain values, or in certain routes, it does not, and then the obligation sits with you or with the importer.

The reporting problem

Marketplaces do not all report collected VAT the same way, and the figure may not be a separate line on the order. That makes the reconstruction of what was collected versus what you owe a genuine piece of work at return time.

The practical answer is to record, per order, whether VAT was marketplace-collected, and keep the settlement data that evidences it. Doing that at the time costs seconds. Reconstructing it at year end costs days.

Reclaiming input VAT

Supplier invoices from overseas typically carry no reclaimable VAT, which surprises sellers used to domestic purchasing. Your reclaimable input tax is mostly on your own costs - software, fees, services - rather than on stock.

Fees may carry VAT of their own

Marketplace fees can carry VAT depending on where the marketplace entity is and whether you have given them a VAT number. That VAT may be reclaimable, and sellers routinely miss it because the fee is netted off before they ever see it.

What to record from day one

• Whether VAT was marketplace-collected, per order
• The country the goods shipped from and the country they shipped to
• Consignment value as declared
• Fee VAT, where it is itemised separately

None of that is difficult to capture while the order is in front of you, and all of it is painful to reconstruct later. Which is exactly why it is usually missing.

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