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    1. denchaser is offline

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      #1

      Drop shipping as a sole trader or limited company?

      Do dropshippers deal with sole traders? have to register as self employed and file self assesment tax return every year,but do i get a trading number? (wholesalers & dropshippers ask for your company number to trade with you?) or do i have to go limited company and register at company house,they will give me a trading number,is this the number the suppliers are looking for? Or is it a VAT number? im a little confused. if someone could help me would really appeciate it.thanks.
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      #2
      Real drop shippers will only deal with Tax / VAT registered businesses. If your drop shipper doesn't ask for your business or tax details, you know automatically that you are dealing with a middle man, and not with a real wholesale drop shipper. Essentially, by not registering as a business you risk to be eaten up by middle men drop shippers asking for drop shipping fees; that is the simplest way to put it.

      You will find that many middle men will try to convince you of the contrary, because they want to persuade you to pay a drop shipping fee. If you want to deal with true wholesale drop shippers, you must demonstrate that you are a reseller, and therefore that you have a business and a tax ID.

      In the UK, this equates to your Ltd company number and your VAT number.

      In the US, this equates to a resale license, incorporation number and Tax ID number.
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      denchaser (25 Aug 2010)

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      #3
      hm customs say that if im earning £30,000 + a year i have to be VAT registered,but if im not i dont have to,im not planning on earning that much.so how do i get the dropshippers to deal with me when im not VAT registered???, do i still have a buisness id? how do i attain one?,thank you.

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      #4
      You may still get away without having a VAT number, but you need to have a registered company or proof of trade.

      If you have an established website, the wholesale drop shipper may still deal with you even if you don't have a company or VAT number (the idea is that you need to prove that you are a serious reseller, and not an end user or part time trader). However watch out for middle men drop shippers pretending to be real drop shippers. Those types of drop shippers will accept anyone just to make an extra buck.

      You can register a company in the UK by visiting Information & Guidance - Starting a company and you can register for UK VAT by visiting HM Revenue & Customs: VAT

      In the US it's quite different, you are required to have a valid Sales Tax ID and resale license. In the UK, most true wholesale distributors and wholesale drop shippers will require proof of trade status.

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      denchaser (25 Aug 2010)

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      #5
      thanks for the reply, i am waiting for a reponse from business link on wether or not i get the buisness number/ ID i can trade with if i register as a "sole trader" or "limited Company" here in the uk. i shall post the answer when they respond to me.

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      #6
      You will not get a business number if you register as a sole trader in the UK, only a tax reference number and a confirmation letter that you have registered. You will need to check if a supplier will accept such a document as sufficient indication that you are a trade buyer.

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      denchaser (26 Aug 2010)

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      #7
      still no response from business link,however i have done some digging on the hm customs website and i can register for VAT. the law says that if i earn £70,000a year then i HAVE to be VAT registered, but if i dont earn that amount then i can register voluntarely.Which was good news for me because the whole idea of being a limited company was all a bit to much to take on with corparation tax ,capital gains tax etc etc.Didnt make any sense to me,and plus hiring an accountant would of been an extra cost to me which i dont need. With me being VAT registered then hopefully the dropshippers will trade with me.So my plan now? ,be a sole trader,register for self employment, fill in my self assement form every year, fill in my VAT return quarterly, pay my class 2 NIC's. Im happy now, However if you can see a problem with me doing it this way or i have overlooked something please let me know, i dont want to get in any trouble.thank you,hope this is usefull to others.

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      #8
      Hi Denchaser,

      That's perfectly fine, and yes you are only required to register for UK VAT once your turnover is due to exceed £70,000 in any 12 months period (this is the 2010 threshold - the turnover threshold for compulsory UK VAT registration is revised by the UK government yearly).

      Try approaching suppliers as a sole trader first, and see the type of response you get. Keep a record of those suppliers that won't deal with you unless you have a Ltd company and / or are registered for VAT. And finally evaluate whether dealing with those suppliers is worth registering for UK VAT voluntarily, and / or registering a Ltd company.

      Don't forget that having a Ltd company also means that your personal liability is limited to the capital of the company. If, for example, you trade as a sole trader, and you decide to import goods from abroad which turn out to be illegal or they infringe on someone's copyright or trademark, your personal possessions are at risk.

      With a Ltd company you limit your liability in case something goes wrong, plus you benefit from lower taxation (you can still use your Ltd company's capital for business related purchases, which include property, office premises, and anything else that can be associated with your business activity). This is why a good accountant can be a priceless investment, despite the initial outlay.

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