Table of Contents
In Short
- Even though your supplier fulfils orders, your business is liable for product quality. Conduct thorough vetting of suppliers to avoid issues.
- Ensure you comply with income tax, VAT, and customs duty requirements.
- Establish clear legal agreements with suppliers to define responsibilities, and adhere to advertising laws to avoid liability issues.
Tips for Dropshipping Businesses
When starting or running a dropshipping business, take steps to ensure legal compliance. Draft robust agreements with suppliers, perform regular supplier reviews, and monitor tax obligations. Avoid misrepresenting products in advertising by adhering to advertising standards and providing accurate product descriptions to build trust and reduce risks.
As an online business, you must comply with the law and avoid unintentionally breaching the law when running your online store. One type of online business model for an online retailer is a dropshipping model. A dropshipping business model means you work as a seller with a third-party supplier to fulfil your customer’s orders. A dropshipping store is a good way for business owners to make money fairly quickly and presents an accessible way to get into the eCommerce industry. However, many dropshipping businesses face legal issues regarding product quality and sales tax. There are perhaps areas of the law in terms of your customers’ orders that you may not realise you must comply with for a dropshipping business model, so you should take legal advice from legal professionals. This article will explain how to avoid legal issues when dropshipping with your eCommerce business dropshipping store in the UK.
Dropshipping
Dropshipping is a popular model for an eCommerce business. It allows the eCommerce business to outsource processing, procuring, storing, and shipping their products to a supplier. In reality, this may look as follows:
- your eCommerce business advertises the product for sale on your website at £20;
- a customer views and purchases this from your website for £20;
- you then purchase the product from a third party for £15. This is from another eCommerce business supplier, which results in a £5 profit for your business.
- the third-party supplier ships the product to your customer.
Legal Issues
Like any other eCommerce business, dropshipping needs to comply with the law. Let us explore some legal issues you can avoid with a dropship business.
Poor Quality
Despite the product purchased through dropshipping not coming directly from your business, you are still responsible for the quality of the product. In other words, if the product is faulty, your customer can rightly pursue your business customer services for a resolution.
Another way to avoid the legal issue of poor quality products is to conduct due diligence when selecting a supplier. Accordingly, factor in the following considerations when vetting suppliers:
- whether their products are legal;
- their history; and
- their reputation.
It is also a good idea to monitor your suppliers continuously to ensure that there are no issues with their business, which could result in legal matters you could avoid.
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Tax
You must avoid any legal issues concerning tax when engaging in a dropshipping business. As with other eCommerce businesses, tax is still due when you sell your products. You are liable for:
- income tax;
- customs duty for goods you purchase outside the UK entering the UK; and
- value added tax (VAT).
Legal Liability
As dropshipping means buying products from others to send to your customers, you must try to steer clear of issues concerning legal liability. This is an area which can be unclear in many circumstances. A way to avoid legal liability issues is to take legal advice. A lawyer can draft legal agreements between you and your suppliers. These should detail who has legal liability for:
- the sales process;
- the shipping process; and
- throughout the customer’s usage of the product.
Advertising
An important legal issue to avoid when dropshipping is false advertising. The business model your eCommerce store adopts is to advertise the product on your website and to purchase it elsewhere. You, therefore, need to ensure you comply with advertising laws. This means you must:
- be honest with your advertising;
- comply with advertising standards; and
- follow social media platform rules.
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Key Takeaways
If you run or plan to start a dropshipping eCommerce business in the UK, there are some legal issues you can try to ensure you avoid. Dropshipping eCommerce businesses are legal but also must comply with the law. This article has presented some legal matters you can avoid with a dropshipping business. It explains avoiding issues with poor quality products and that you must pay income tax, VAT and customs duties to avoid the legal problems associated with not doing so. The article also explains the importance of complying with advertising laws and avoiding issues regarding legal liability.
If you need help understanding how to dropship and avoid legal issues, our experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Yes, dropshipping businesses are legal. However, you need to note various compliance risks before launching this type of business.
Yes, many dropshipping businesses are profitable in the UK. There is no need to invest in profit developments and the main costs involve sampling products that already exist. It is, however, essential to choose the right items to dropship.
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