What are the Legal Considerations for Setting Up a Dropshipping Business in the UK?

Dropshipping is a relatively new way of doing business, but it is fast becoming popular. This is because there is a relatively low barrier to entry to dropshipping. Indeed, all you need to do is to set up a website, find a supplier of goods you wish to sell, and then you can get going. However, there are a few ways to run into problems, meaning that your business may cause you to lose money instead of making it. This article will explain how dropshipping works and the key points you need to consider before setting up your dropshipping store.

What is Dropshipping?

Put simply, dropshipping is a retail fulfilment method where you sell goods, but someone else delivers them to your customer. A customer visits your website and purchases an item from you. You then ask your third-party supplier to send that item to your customer, providing them with their delivery details. Your profit is the difference between what the customer pays you and what your supplier charges you to fulfil the order.

Advantages of Dropshipping

Dropshipping can be an excellent way to get started with an online store since it is relatively easy to set up your dropshipping business, and you do not need to invest or store lots of stock. You also do not need to deal with actually shipping your goods. Effectively, you make a website offering your chosen products for sale, but hand-off dealing with stock and shipping of orders to your supplier.

What to Consider Before Starting Your Dropshipping Business

Although there are definite advantages to the dropshipping business, there are a few legal issues that you need to be aware of, particularly if you set up a dropshipping business in the UK.

1. VAT Issues

Depending on where in the world you are selling to and where the goods you sell are supplied from, you must consider value-added tax (‘VAT’) issues. Since 1 January 2021, online businesses must collect VAT as the seller of goods when the customer makes a purchase. If you are selling goods supplied by a UK supplier to a UK customer, the rules would be the same as for any other UK sale made by ordinary means.  

However, if you are planning to sell to customers outside of the UK and use suppliers outside of the UK, it could get very complicated for you. In these cases, you should get specific tax and legal advice. For example, if you get a supplier in China to send goods to a UK customer, you need to collect VAT on these goods and register for VAT. If that Chinese supplier sells goods to a customer in France, you would need to collect the appropriate VAT they would usually pay for goods. You would also need to register for VAT in one EU state so that you can submit an EU tax return via the government’s One Stop Shop VAT return.

The actual VAT rate also changes depending on what goods you sell, which adds further complications. Most goods are currently charged at 20% in the UK, but some are set at 5%, and some are zero-rated. As indicated above, those rates change depending on your EU customers’ country. For example, the standard rate in France is currently 20%, but they have two reduced rates for some goods. The usual rate in Ireland is currently 23%. Again, to avoid uncertainty, you should seek legal help if you plan to sell to overseas customers and use overseas suppliers.

2. Consumer Protection Rules

As well as navigating complex VAT rules, you must also abide by laws put in place to protect consumers’ rights. These consumer protection rules give your customers rights if your supplier sends them goods that are faulty or the product quality is otherwise poor. Whilst you can take up any issues with your supplier, you will be the person responsible for making things good with your customer at the end of the day. Similarly, distance selling regulations give your customers 14 days to decide they do not want their goods after all, and they do not have to provide you with a reason. You will still have to give your customer a refund, and it may cost more for you to send the goods back to the supplier than the goods are worth.

Because of the potential headaches involved with dealing with issues that arise with customer orders, you must be careful in choosing your suppliers, since you will have legal liability if anything goes wrong.

3. Dealing with GDPR

One final thing you must be aware of is that your online business must be GDPR compliant. GDPR stands for the General Data Protection Regulation, implemented in the EU and UK in 2018. As a dropshipping business owner in the UK, the GDPR will apply to you, and it is a legal requirement that your business is fully GDPR compliant. You must tell your customers certain information about your business and how you use their personal data. You should usually contain this information in a Privacy Policy and Cookie Policy. 

Key Takeaways

Although dropshipping is seen as an ideal way to enter the online selling arena as it requires little in the form of start-up costs, there are things you need to be aware of before you start your dropshipping business, notably:

• the need to abide by consumer protection laws;
• VAT issues specific to UK dropshippers; and
• compliance with GDPR is necessary.

It is crucial to carefully choose your suppliers and consider your pricing strategy, as any mistakes could seriously affect your profit. If you need help setting up a dropshipping business, our experienced e-commerce 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. Call us today on 0808 196 8584 or visit our membership page.

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