Ecommerce sellers were well-aware from the outset that Brexit would likely have a major impact on their business. What was perhaps less obvious was that Brexit would affect drop shipping so drastically. Drop shipping is a business model for ecommerce sellers that means they don’t need to hold stock or inventories. This segment of the industry has been in real trouble since Brexit with many ecommerce sellers abandoning the model altogether. This article will take a look what drop shipping is and how Brexit has affected it.
What Is Drop Shipping?
As stated in the introduction, drop shipping is a business strategy employed by many ecommerce sellers which means that they don’t need to hold stock. Rather than having a huge inventory, these sellers wait until an order is placed, and then buy the product from a third party in another country, who then sells the product directly to the consumer.
This is a very popular form of ecommerce and is very common on platforms such as Etsy and Shopify. Indeed, there are over 140,000 drop shippers in the UK alone.
How Has Brexit Affected Drop Shipping?
The main ways that Brexit can be seen to have impacted drop shipping is new VAT regulations and customs.
New VAT Requirements
The first major change that Brexit brought about was shifting the responsibility for VAT away from the customer at the point of receipt and on to the company or facilitating market place at the point of sale.
This meant that prices went up to account for the VAT. This is extremely problematic for dropshippers since they are obviously already working with narrow profit margins since they are reselling from a third party.
Brexit also saw the ending of low consignment relief, meaning products and imports under £15 were also subject to VAT which was not the case previously. This again meant that cheaper products had to be re-priced.
Customs & Importing
The other main issue was the massive changes to importing and customs. Customs now places much more obligations on importers, such as EORI numbers and C23 forms. This has meant that many suppliers no longer think it is worth it to deliver such small items.
Even if a drop shipper’s supplier is still willing to ship products to the UK, it is the supplier who is responsible for customs declarations. This means that a drop shipper can not be 100% sure that their products will even make it through customs.
What Drop Shippers Should Do
The first thing is to register for VAT. Previously this would not have been required but now if anyone is to sell directly to a UK consumer (not through a market place) they must register for VAT. We can help you register for VAT.
The next thing is obviously to check whether the increased VAT will mean you need to adjust the prices of your products or drop them from your offerings altogether. If you are using OMPs such as Shopify, it would definitely be worth changing your tax settings.
Some experts believe it would be worth drop shippers getting a lot of stock delivered in bulk. But, whilst this may save you some money, it would defeat the whole point of drop shipping.
Is The Model Still Viable?
Brexit has certainly had a negative affect on drop shipping. Sellers should certainly take a long look at their business model and decide what the best course of action is to take. Our next article will be a full review of Brexit 6 months on, so make sure you follow us on our social media so you don’t miss it.
If you are a business who participates in cross border e-commerce, or importing of any kind, we would be more than happy to help you register for an EU and UK EORI number. We can also help you register for UK VAT, the UK VAT deferral scheme, file your UK and EU VAT returns, and help you comply with VAT in case your account faces any issues.
At J&P, helping your business is our passion, and we understand that companies across the UK are at risk now more than ever. We are here to support you through this post-Brexit period, so please do not hesitate to give us a call on 07734 182821 or send an e-mail to enquiries@jpaccountant.com.
