Dropshipping — selling products that a third-party supplier ships directly to your customer — is one of the lowest-capital ways to start an e-commerce business. Running it through a UK limited company adds credibility, unlocks UK payment providers, and separates you from business liability. But dropshippers routinely get VAT and import rules wrong. This guide covers the setup and the compliance points that matter most in 2026.
Dropshipping Company Key Facts 2026
- Structure: a UK limited company adds trust and payment access
- VAT registration: compulsory over £90,000 turnover; often useful earlier
- £135 rule: import VAT collected at point of sale on low-value consignments
- Marketplaces: often become the 'deemed supplier' for VAT on your sales
- Non-residents: may need to register for UK VAT from the first sale
- Records: keep supplier invoices, sales data and VAT evidence
Why use a UK company for dropshipping
A UK limited company gives your store legitimacy with customers and suppliers, makes it easier to open UK business bank accounts and payment gateways (Stripe, PayPal Business), and limits your personal liability. It also positions you well if you later hold stock or expand into a full e-commerce operation. Non-resident founders can own and run a UK dropshipping company entirely from abroad.
VAT registration and thresholds
You must register for UK VAT once your taxable turnover exceeds £90,000 in a rolling 12 months. Many dropshippers register voluntarily earlier to reclaim input VAT and appear established. Critically, non-established (overseas) sellers making taxable sales in the UK generally have no threshold — VAT registration can be required from the first UK sale. See our VAT for non-residents guide.
The £135 import consignment rule
For goods shipped from outside the UK to UK consumers in consignments valued at £135 or less, import VAT is replaced by supply VAT collected at the point of sale — the seller (or marketplace) charges 20% UK VAT at checkout and remits it to HMRC, rather than VAT being charged at the border. Above £135, normal import VAT and potentially duty apply on entry. Dropshippers whose suppliers ship direct from China must account for this correctly.
Marketplace deemed-supplier rules
When you sell through an online marketplace (Amazon, eBay, etc.) and goods are either imported in low-value consignments or already in the UK owned by an overseas seller, the marketplace is often treated as the “deemed supplier” and becomes responsible for collecting and paying the VAT on that sale. You still have your own VAT and record-keeping duties, so understand who is accounting for VAT on each transaction to avoid double-counting or gaps.
Staying compliant and profitable
Keep clean records of supplier invoices, platform sales reports and VAT collected. Be transparent with customers about shipping times and returns — consumer law still applies. Watch your margins: VAT, payment fees, ad costs and returns erode thin dropshipping markups fast. Build VAT into your pricing from day one rather than discovering it at your first return.
Launch your dropshipping company
1st Formations gets your UK dropshipping company registered fast — ideal for resident and non-resident founders, from £12.99.
View company packagesFAQ
Do I need a UK company to run a dropshipping business?
No, but it helps significantly. A UK limited company adds credibility with customers and suppliers, makes it easier to access UK payment gateways and bank accounts, and limits your personal liability. Non-residents can own and run a UK dropshipping company from abroad.
When do I need to register for VAT as a dropshipper?
UK-established sellers must register once taxable turnover exceeds £90,000 in 12 months. Overseas (non-established) sellers making UK sales generally have no threshold and may need to register from their first UK sale. Many sellers also register voluntarily to reclaim input VAT.
What is the £135 import rule for dropshipping?
For goods sent from outside the UK to consumers in consignments worth £135 or less, VAT is charged at the point of sale rather than at the border. The seller or marketplace collects 20% UK VAT at checkout and pays it to HMRC. Above £135, normal import VAT and duty apply on entry.
Who pays the VAT when I sell through a marketplace?
For many imported low-value goods or goods held in the UK by overseas sellers, the marketplace is treated as the 'deemed supplier' and collects and pays the VAT on the sale. You still have your own VAT registration and record-keeping duties, so confirm who accounts for VAT on each order.
Can a non-resident run a UK dropshipping company?
Yes. Non-residents can incorporate and own a UK limited company and run a dropshipping business entirely from overseas. Be aware that non-established sellers often face UK VAT registration from the first sale, so factor VAT and compliance into your plan early.