Dropshipping tax in the UK: a limited company’s accounts

Dropshipping through a limited company: sales, supplier costs and no stock

A dropshipping company sells goods it never holds: a supplier sends them straight to your customer. So it usually has no stock at the year end. But it is the seller. Its sales go in its accounts at what customers paid, and what it pays the supplier goes in as cost of sales. Corporation Tax is charged on the profit in between^1,2,3.

By Fileyear teamLast checked 1 November 20263 min read

Sales in full, not your margin

It’s tempting to think of a dropshipping business as earning only its margin. The accounts don’t work that way. Your company sets the price and sells to the customer, so what the customer pays is your sale. What you pay the supplier is a cost^1,2.

Say that in a year, customers paid £80,000 and you refunded £3,000. Suppliers charged £44,000 for the orders, platform and payment fees were £5,000, and ads cost £12,000. The accounts show sales of £77,000, cost of sales of £44,000, a gross profit of £33,000, and £17,000 of other costs. That leaves a profit of £16,000 for Corporation Tax.

If the accounts showed only the £33,000 margin as sales, profit would be the same, but turnover would be badly understated.

Supplier costs at the year end

Match costs to sales. An order a customer paid for before your year end, which the supplier charged you for after it, is still this year’s sale and this year’s cost. Supplier bills for this year that you paid after the year end are bills owed at the year end.

Check your company’s dates and set a reminder

Search the Companies House register. Your company page shows its filing dates, what to file next and a reminder you can set.

When a dropshipper does have stock

Some sellers order samples, or buy a batch to keep in a warehouse for faster delivery. Goods the company owns and hasn’t sold at the year end are stock, at what they cost. See how to value stock.

VAT, briefly

Two things catch dropshippers out. First, the VAT registration threshold of £90,000 is measured on taxable turnover over the last 12 months, which is your full sales⁵. Second, goods worth £135 or less sent from overseas straight to UK customers have VAT charged at the point of sale, not at import, and who accounts for it depends on whether you sell through an online marketplace⁶.

Fileyear doesn’t file VAT returns, so read HMRC’s guidance or get advice if either applies to you.

How Fileyear does it

Fileyear prepares your company’s accounts and Company Tax Return from its bank statement. Customer payments and platform payouts are sales. Payments to your suppliers are cost of sales: Fileyear asks you to confirm any it can’t recognise. When it asks about stock, answer that the company held no goods for sale at the year end, unless it did. If you sell through a marketplace, Fileyear offers to read its payout or summary report so your sales go in at the full amount. See how to do your company accounts as an online seller.

See Fileyear for online sellers for the supported stock, payout and bookkeeping inputs.