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I am in no way a tax accountant or tax proffesional, nor do I pretend to be one. All the information shared in this article is purely speculation and from a personal perspective. If you have tax questions you should always consult a legal tax accountant.
Basic Dropshipping Taxes
With dropshipping there are two basic taxes that you must understand.
The first tax is income tax, this will be the tax you pay typically at the end of the year. In relation to your companies total net profits beyond all expenses.
Income tax is relitively simple, however i do recommend working with an accountant. Since they can find different ways to give you tax breaks and lower the amount you have to pay.
The next tax is sales tax, this is tax collected on each product that you sell to a customer. Sales tax is collected in several different ways, but typically it is collected only in the country that your business is located in. This of course depends on the size of your business.
With sales tax it can be slit into different tax % depending on the part of a country your business is located in. These rules are all different for each country, so you will want to consult a tax accountant for information specific to your country.
Brexit UK VAT, Dropshipping to the United Kingdom
The United Kingdom recently left the european union, this resulted in them declairing a new tax collection system.
Simplyfied down, they are now collecting a value added tax on all products that are shipped to the UK.
This will be the responsibility of the seller to collect this tax from their customer at checkout. Or if you are dropshipping, certain agents and agencies might collect the tax for you and add it to your dropshipping cost.
I recommend contacting your dropshipping agent or agency and confirming if they will be collecting the VAT or if it's something you will need to do.
There has been a lot of pressure from all sides to get registered, however when i completed the entire registration online. The official UK website, stated that I did not have to register and it was voluntary.
Your Options In My Opinion
You can go online and register for the VAT tax and have everything set up. This way you don't have to worry about how things evolve and change.
Or you can simply leave it and see how things play out. Certain platforms might start collecting the tax on your behalf. Or certain suppliers might start collecting taxes on your behalf.
Either way, there really is no harm in having a VAT tax account since you can sumbit a NILL tax return. It simply is just a bit of an annoyance setting it all up.
The choice is yours, I go into more detail about how I came to these two conclusions in the video above. I highly recommend you watch the whole video, then consult a tax accountant if you have any further questions.
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