VAT on Dropshipping Goods Direct from China to UK and EU Customers

Dropshipping from China is the model where VAT goes wrong most often, because the goods never touch the seller. They move directly from a Chinese supplier to a UK or EU consumer, crossing a customs border on every order. That single fact changes the VAT treatment from the holding-stock case, where the seller imports once and sells domestically. In the dropship case the import and the sale happen together, the value of each consignment decides the rules, and the seller is frequently treated as making a UK or EU supply they did not realise they were making.

This piece is part of the dropshipping and POD accounting pillar and follows on from the principal-versus-agent question, because the VAT treatment assumes you are acting as principal and selling the goods in your own name. It sits alongside the broader question of who accounts for the VAT on marketplace sales, which is the other half of the dropship VAT picture for sellers who route orders through Amazon or eBay.

The £135 line for UK consumers

For goods sold to a Great Britain consumer from outside the UK, the dividing line is the consignment value of £135. According to HMRC guidance on overseas goods sold directly to UK customers, consignments with a value of £135 or less that are outside the UK and sold directly to GB customers have UK supply VAT charged at the point of sale, rather than import VAT collected at the border. The seller has to be registered for UK VAT to account for that supply VAT, and the £135 figure is tested on the total value of the consignment, not the price of an individual item.

Above £135 the position flips. Normal import VAT and customs rules apply when the goods enter Great Britain, so the VAT is collected at the border on importation rather than charged by the seller at checkout. The practical effect for a dropshipper is that low-value orders pull the seller into UK VAT registration and point-of-sale accounting, while higher-value orders raise the question of who is the importer of record and who reclaims the import VAT.

Who is the importer when nobody holds the stock

In a dropship chain the goods are imported into the destination country, but the seller is rarely physically involved in the import. If the consignment is over £135 and the customer is named as the importer on the customs paperwork, the customer can be hit with an unexpected import VAT and handling charge at the door, which is the single biggest source of dropship chargebacks and refused deliveries. If the seller arranges import in their own name, the seller needs an EORI number and a customs process for every shipment. Either way the customs side does not disappear just because the seller never sees the box, which is why EORI numbers and customs declarations post-Brexit matter as much for dropshippers as for stock-holding importers.

The marketplace short-circuit

Selling the same China-sourced goods through Amazon or eBay changes who carries the VAT. For consignments of £135 or less that are outside the UK at the point of sale, the online marketplace is liable for the UK VAT rather than the seller, under the deemed supplier rules. The seller makes a zero-rated supply to the marketplace and the marketplace charges and accounts for the consumer-facing VAT. A dropshipper running both a Shopify storefront and a marketplace presence therefore has two different VAT routes for identical goods, which is exactly the kind of split that needs mapping channel by channel rather than assumed away.

The EU side and the €150 threshold

Shipping the same Chinese goods to EU consumers brings in the EU import rules. The EU operates a €150 intrinsic-value threshold for the simplified import scheme, and the Import One-Stop Shop lets a seller charge destination VAT at checkout on consignments below that figure so they clear EU customs cleanly. According to the European Commission guidance on customs formalities for low value consignments, the IOSS simplification applies to distance sales of goods imported from third countries in consignments of an intrinsic value not exceeding €150, and the old VAT exemption for goods below €22 was abolished in July 2021. The mechanics of registering through an EU intermediary are covered in the companion piece on the Import One-Stop Shop for UK sellers.

There is a significant change for 2026 that dropshippers selling into the EU need to factor in. From 1 July 2026 the EU is removing the €150 customs-duty exemption that previously applied to low-value imports and replacing it with a temporary flat customs duty of €3 per item on consignments up to €150, set to run until 1 July 2028. That duty sits on top of the VAT and changes the landed-cost arithmetic on cheap China-to-EU dropship orders, so margins built on the old duty-free assumption need recalculating against the current EU rules.

VAT registration follows the model, not the turnover

A common dropshipper assumption is that VAT registration only bites once turnover crosses the UK threshold. The low-value import rules cut across that. Where a seller is making point-of-sale supplies of imported goods to UK consumers on consignments of £135 or less, the obligation to register and account for that supply VAT can arise regardless of the headline turnover position, because the seller is making a taxable supply in the UK from the first such sale. The interaction with the standard registration threshold is genuinely awkward, and a dropshipper shipping low-value goods directly from China should take the registration question as live from launch rather than wait for a turnover trigger.

What this means for the bookkeeping

• Map each channel separately: own-storefront sales below £135 carry point-of-sale UK VAT; marketplace sales below £135 from outside the UK are the marketplace deemed supply.
• Record the consignment value test at order level, since it is the consignment total, not the item price, that decides the route.
• Track EU orders against the €150 IOSS threshold and the new 2026 €3 per-item duty so the landed cost is right.
• Keep the import VAT evidence for over-£135 consignments where the seller is importer of record, so the input VAT is recoverable.
• Reconcile supplier invoices from China as COGS against the matching customer sale, since the two legs settle on different timelines.

Do I have to register for UK VAT before I make any sales?

If you are dropshipping goods directly from outside the UK to UK consumers in consignments of £135 or less through your own website, you are making UK supplies of those goods and the registration obligation can arise from the first sale rather than at the turnover threshold. This is one of the few situations where a brand-new seller with modest turnover still needs to be VAT registered, because the rule attaches to the supply rather than to a turnover figure. The safe approach is to treat registration as a day-one question for this model and confirm your specific position before you start taking orders.

Does IOSS cover my China-to-EU dropship orders?

IOSS can cover them, provided the consignment intrinsic value is €150 or less and the goods are not excise goods. The seller charges destination-country VAT at checkout, files through the IOSS intermediary, and the consignment clears EU customs without VAT collected at the border. From 1 July 2026 a separate €3 per-item customs duty applies to those same low-value consignments even though IOSS handles the VAT, so IOSS solves the VAT clearance but no longer means the order is duty-free into the EU.