There are two VAT rules that matter most when you run a dropshipping shop in the UK. The first tells you when you have to register for VAT. The second covers products sent from abroad straight to your customer, which is how most dropshipping works.
When you have to register for VAT
You have to register for VAT once your sales over the last 12 months go over £90,000, or if you expect them to go over £90,000 in the next 30 days. The 12 months are any 12 months in a row, not the tax year, so it is worth keeping an eye on your sales every month. You can also choose to register before you reach £90,000.
See when your sales would reach £90,000 →
Orders of £135 or less sent from abroad
When an order worth £135 or less is sent from outside the UK straight to a customer in England, Scotland or Wales, VAT is not charged when the parcel comes into the country. Instead, the seller has to charge the VAT when the customer pays, and pay it to HMRC.
The £135 is the value of the whole parcel, not of each item in it. If the parcel is worth more than £135, VAT and any customs duty are charged when it comes into the country instead.
Different rules apply if you sell through an online marketplace, such as Amazon or eBay, rather than on your own website.
What you should do
How these rules apply to you depends on how your shop and your supplier are set up, and on whether you are registered for VAT. Read HMRC's own guidance, linked below, and if you are not sure, speak to an accountant before you set your prices, because VAT changes how much you keep from every sale.
