Drop shipping and VAT

Wondered whether anyone could shed any light on this regarding VAT and whether it is possible.

Didn't find your answer?

I wondered whether anyone could shed any light on this for me as its something I've never come across and reading the HMRC VAT notices doesn't seem to be helping me at all.

A client has been asked by their non VAT registered customers whether they can be treated differently so as not to pay any VAT and I'm not sure whether this is something which is allowed.

The business has started to distribute their products 2 ways:

1. Orders are passed onto a 3rd party who fulfils the order and the client charges them 7.5%  plus VAT as commission

2. Orders are shipped directly from client and they charge 20%  plus VAT as commission.

The non VAT registered customers are asking whether the client will reduce the wholesale amount by 7.5% or 20% so they don't pay any VAT and the client then charges the retailer directly with the 7.5%/20% margin added back on. So to my client they are billing the same amount with the same amount of VAT on but the VATable cost is borne by the retailer.

Is this the way in which other businesses operate where they are offering a drop ship service? 

I hope the above makes sense because I don't know where to turn on this, a call to HMRC was absolutely no help at all.

I'm happy to pay for someone's time on this to point me in the right direction and show me the relevant VAT legislation.

Many thanks

EDIT: The goods sold are zero rated for VAT purposes it is just the vat on the commissions.

Replies (2)

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By David Ex
16th Feb 2022 12:14

Starting point, I have learned from reading here, is who is supplying what to whom.

Assuming, for the sake of argument that the “planning” works, is your client being asked to change/alter their business model? What issues would that raise?

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VAT
By Jason Croke
16th Feb 2022 13:02

Where are the goods coming from? UK or rest of world?

Of course non-VAT registered customers want to avoid VAT, don't we all, but are these non-VAT registered customers businesses (B2B) or consumers (B2C) or both?

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