Dropshipping UK Guide: VAT Rules, Suppliers & Real Costs

The UK dropshipping market is projected to reach USD 78.7 billion by 2030, growing faster than anywhere else in Europe. But if you are still reading guides from three years ago, you are setting yourself up for failure. The days of simply throwing a product on a store and ignoring the logistics are over.

In late 2025, success relies on navigating strict VAT rules, understanding the £135 consignment threshold, and avoiding suppliers that have quietly gone bust. This isn’t just about listing products; it is about building a compliant, sustainable business.

The Reality Check: Costs and Margins

Let’s kill the biggest myth immediately: Dropshipping is not free. While many gurus claim you need zero capital, the reality in the UK market is different. To launch a store that actually converts, you need a monthly budget between £200 and £600.

Where does this money go?

• Platform Fees: Shopify Basic will run you about £30/month.
• Data Protection: If you process customer data electronically (which you will), you must register with the ICO. As of February 2025, the fee is £52 for micro organizations.
• Marketing: You need at least £100–£300 initially to test products before you find a winner.

The Practitioner’s Insight: Beginners usually see net profit margins below 10% due to ad spend. Established stores with email lists and optimized funnels operate in the 15-20% range. If you are looking for a different model with potentially different capital structures, you might compare this to Amazon FBA in Germany, which requires upfront inventory but offers different logistical benefits.

Navigating UK Law: VAT and Taxes

The boring legal stuff is usually what shuts down new stores. Here is the simplified breakdown of what you must know to stay safe.

The £90,000 Threshold

You do not need to register for VAT immediately. You only must register if your taxable turnover exceeds £90,000 in a rolling 12-month period. This threshold is confirmed until March 2026. However, you must register your business as either a Sole Trader or a Limited Company from day one.

The £135 Rule (Crucial for China Imports)

If you are dropshipping from China (AliExpress, CJ Dropshipping) to UK customers, the value of the package changes who pays the tax:

• Under £135: VAT is collected at the Point of Sale (POS). Platforms like AliExpress usually handle this automatically.
• Over £135: Import VAT and duties are charged at the border. Warning: If you don’t use specific shipping terms (like DDP), your customer will get a surprise bill from Royal Mail before they can collect their package. This guarantees bad reviews and refunds.

Curated Suppliers List: What to Use, What to Avoid

Not all suppliers survived the last few years. Here is the current state of the market.

The reliable options

• AliExpress (The Standard): Still the king of variety. In 2025, standard shipping to the UK takes 12-30 days. Pro Tip: Only use suppliers offering “AliExpress Premium Shipping” (5-15 days) or those with local EU warehouses (5-10 days). Look for the ‘Choice’ badge for priority handling.
• Shein (The Unofficial Giant): Shein doesn’t have an official dropshipping API, but many use it for its trend setting fashion. Shipping to the UK is fast (7-12 days). The Friction: You must take your own photos. Shein aggressively protects its copyright, and using their model photos on your store is a risk. For fashion inspiration, it is also worth looking at major European players like Zalando to see what is trending before sourcing similar items.

The “Avoid” List

• Tmart: Forget about them. As of late 2025, Tmart as a dropshipping platform is effectively defunct. Don’t waste time searching for it.
• MiniInTheBox: While they are still active, recent reports highlight exorbitant shipping fees that can equal 50% of the product cost. This kills your margin. Proceed with extreme caution.

Financial Friction: Payment Gateways

Your customers in the UK expect seamless payment options. If you don’t offer PayPal and card payments, your conversion rate will suffer. Be aware of the fees eating into your profit:

• Stripe UK: 1.5% + 20p for standard UK cards. Premium or business cards are higher at 1.9% + 20p.
• PayPal UK: Standard commercial fee is 2.9% + 30p.

Strategic Tips for 2026

To succeed where others fail, adopt a “Street Smart” approach:

• Niche Down Aggressively: Don’t open a “General Store.” Pick a specific micro niche. For example, instead of just “fashion,” look at specific trends like Ukrainian fashion brands or sustainable activewear.
• Price Check Locally: Before importing, check local discount sites to ensure you aren’t overpricing. Sites like those offering cheap clothes in Germany or the UK often set the consumer’s price expectation.
• Test Shipping Speed: Order a sample to your own house. If it takes 30 days to arrive, do not sell it. UK customers are used to Amazon Prime; they will not wait a month without complaining.