6 step guide to registering your dropshipping business

Learn how to navigate the maze of registering a business in the UK, and turn your dropshipping dreams into a reality.

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If your dream is to launch your own online business, get ready to dive into the world of dropshipping

We’re here to guide you through the essential steps to set up shop and help you stay on top of the UK’s business regulations.

With the recent boom of ecommerce and side hustles, an exciting era has unfolded for budding entrepreneurs: dropshipping. 

Follow  our step-by-step guide to ensure you tick all the right boxes to establish a fully compliant business.

What is dropshipping?

Dropshipping is a retail model where sellers take customer orders but don’t maintain physical inventory.

As a budding entrepreneur, dropshipping will offer you a low barrier to entry into selling, as well as flexibility. With no upfront purchases or inventory management, you’ll start with lower initial costs, making it accessible if you have limited capital. Its flexibility will allow you to operate from anywhere with an internet connection, offering you the freedom to run your business at a location of your choosing. 

The ability to curate a virtual storefront without worrying about warehousing or shipping logistics is another significant draw. Additionally, the model allows for a wide product range without the risk of being stuck with unsold inventory, enabling you to test and adapt to market trends swiftly.

When a customer places an order through your online store, the supplier ships the product directly to the customer. Your role is to create a seamless shopping experience by curating a compelling website, managing orders, and offering top-notch customer service. 

Is dropshipping worth it?

While there are drawbacks, as we’ve highlighted below, the success of your dropshipping venture will depend entirely on the niche you’re targeting in the market and your level of dedication to the business.

In that article there are a lot of pros and cons to consider, as well as case studies from people who have been through the best and the worst, but here’s a quick rundown:

Advantages:

  • Low startup costs
  • Flexibility in location and time
  • You can have a wide product range without inventory

Disadvantages:

  • Intense competition
  • Dependency on suppliers' reliability
  • Market saturation which may lead to a ‘race to the bottom’ pricing strategy in the near future

Do I have to register if it’s just my side hustle?

Yes, even if it’s a side hustle, registering your business is crucial, and ensures compliance with UK business laws.

This is particularly important due to the new rules coming into force from January 2024. As part of a global clampdown on tax evasion, digital platforms that allow people to make extra cash on top of their main income will be ordered to give share users' information with HMRC. 

This will affect everyone – and could mean everyone from Airbnb hosts to delivery drivers, to sellers on online marketplaces and yes, dropshippers, who make money through a ‘side hustle' will have their bank account details shared with HMRC.

You will have to register as self employed once you make more than £1000 on your dropshipping endeavours, and you won’t be taxed until you make over £12,570. Check out this article on the full list of business tax rules and deadlines here.

How to register your business: the step by step guide

Without further ado, here is the in-depth, step-by-step guide providing comprehensive instructions on registering your business from start to finish.

1. Choose your business structure: how do you want to run your dropshipping business?

When structuring your dropshipping business, you have choices such as operating as a sole trader, establishing a limited company, or forming a partnership. There are implications (good and bad) for each one:

Operating as a sole trader offers simplicity in setting up and managing your dropshipping business. You have complete control over decision-making and profits. However, the key downside is that you are personally liable for any debts or legal issues the business encounters. This means your personal assets could be at risk if the business faces financial trouble.

Establishing a limited company provides a distinct legal separation between you and your business. This structure limits your personal liability, safeguarding your personal assets if the business faces legal or financial problems. However, a limited company involves more administrative duties, such as maintaining proper records, submitting annual accounts, and adhering to company laws and regulations.

In a partnership, two or more individuals share the responsibility and decision-making in the dropshipping business. This structure allows for shared expertise, resources, and workload distribution. 

However, similar to a sole trader, partners in a partnership are jointly liable for the business's debts and obligations. This means that each partner's personal assets could be at risk in the event of legal or financial issues within the business.

Your decision should be tailored to your unique circumstances, encompassing elements such as your overarching goals, the degree of control you wish to maintain over the business operations, and the level of protection you seek for your personal assets against potential liabilities. 

2. Choose a business name

This is the part where you get to choose a business name that resonates with your vision, then register the business name. You can let your imagination run wild here, as long as it's not only available but also aligns with naming regulations. This is your chance to craft a brand that truly captures the essence of what you're building. Exciting times lie ahead!

(Also here’s something to consider: research shows small businesses with funny names get more sales.)

3. Register your business

If you chose to run your dropshipping business with a limited company, you’ll want to register your business with Companies House. To do that, you can visit the Companies House website, or fill out the necessary forms online or by post. You’ll need:

  • Your chosen business name and registered office address.
  • Details of directors and shareholders, including names, addresses, and share allocation.
  • A memorandum of association outlining your company’s constitution.
  • Articles of association specifying how your company will be run.

4. Pay any associated registration fees

For a sole trader, the process is relatively straightforward and cost-effective. Registering as a sole trader is free, and you need to declare your self-employment to HM Revenue and Customs (HMRC) for taxation purposes. However, you might have expenses related to other aspects of starting your business, like setting up a website or marketing.

If you opt for a limited company, the registration fee typically ranges from around £12 to £40, paid to Companies House, the UK's registrar of companies.

As for a partnership, the costs can vary based on whether it's a general partnership or a limited partnership. General partnerships usually do not have a registration fee; however, there might be costs related to legal agreements between partners. 

These costs might vary depending on the specific services or professional assistance you opt for during the registration process, such as integrated accounting software.

5. Obtain a Unique Tax Reference (UTR)

After successfully registering your business, the next crucial step is obtaining a Unique Tax Reference (UTR) from HMRC. 

This unique identifier is essentially your business's tax ID and plays a pivotal role in your financial obligations. With the UTR in hand, you gain the ability to file taxes for your business accurately and in compliance with HMRC regulations

It serves as a distinctive marker that is specific only to you as the name suggests, like your passport or national insurance number, ensuring that your tax affairs are properly recorded and managed correctly.

6. Keep records

Keeping track of your financial moves is crucial, and not as bad as it sounds. Think of it as your business diary; the more detailed, the better. A tidy financial trail makes everyone's life easier when tax season comes knocking. Here are the things you may want to keep records of:

  • Invoices: detailed records of sales transactions, including date, customer details, and items sold.
  • Receipts: documentation of business expenses, such as purchases, supplies, or operational costs.
  • Bank statements: statements reflecting business transactions, withdrawals, and deposits.
  • Expenses: detailed breakdown of all business-related costs, including advertising, utilities, rent, and travel expenses.
  • Inventory records: accurate documentation of stock levels, purchases, and sales.
  • Contracts and agreements: Copies of contracts, agreements, or any legally binding documents related to business operations.
  • Tax-related documents: any correspondence with HMRC, tax returns, and relevant filings.
  • Financial statements: Profit and loss statements, balance sheets, and cash flow statements reflecting the business's financial health.
  • Trademarks and other intellectual property: records related to trademarks, including applications, registrations, and any associated paperwork for protecting intellectual property.

Understanding legal and compliance requirements

In the UK, as a dropshipper, certain legal aspects require your attention. Firstly, you’ll have to learn the nuances of consumer rights, data protection laws, and the often-overlooked distance selling regulations – these are the cornerstones of your legal foundation.

Your dropshipping business isn't just about products and profits; it's about trust. Define the rules of engagement with crystal-clear terms and conditions, providing protection for both you and your customers. Your privacy policies, meanwhile, act as a guide, revealing how you handle the precious cargo of customer data.

The General Data Protection Regulation (GDPR) isn't just a buzzword; it's a commitment to safeguarding your customers' information. Compliance here isn't optional – it's a legal necessity. Upholding GDPR standards is not only good practice; it's your pledge to secure and honour the data entrusted to you.

And finally, complying with distance selling regulations ensures transparency and fairness in your transactions. Inform your customers about cancellation rights, delivery details, and the steps they need to take if they wish to return a product. Being upfront about these aspects not only aligns with regulations but also builds customer confidence.

Legal and compliance aspects may not be the glitzy part of dropshipping, but they form the backbone of a trustworthy and resilient business. So, get acquainted with the rules, draw up your terms, and stick to the GDPR.

What else to consider when registering your dropshipping business?

Setting up your dropshipping business involves more than just registration. There are seven steps beginners should follow to succeed with dropshipping. But besides those essential beginning tips, here are some further suggestions for what you can do:

Conclusion

Although not the most glamorous task, registering your dropshipping business is crucial for legitimacy and success. Mastering the legal, financial, and operational aspects lays the foundation for your side hustle to bloom into a thriving empire.

Key takeaways

  • Dropshipping is a method where suppliers directly ship products to customers, offering flexibility and low inventory requirements.
  • Choose your business structure wisely, register your business name, pay any fees, and obtain a Unique Tax Reference (UTR).
  • Maintain detailed records of invoices, receipts, bank statements, tax documents, and intellectual property.
  • Transparency in transactions, informing customers about rights, returns, and delivery details builds trust.
  • Know consumer rights, data protection, and distance selling regulations for a trustworthy business.
  • Craft clear terms and conditions, privacy policies, and comply with GDPR for customer data protection.
  • Beyond registration, focus on an impressive website, efficient order fulfilment, supplier relationships, marketing, and pricing strategies for business success.

Written by:
Stephanie Lennox is the resident funding & finance expert at Startups: A successful startup founder in her own right, 2x bestselling author and business strategist, she covers everything from business grants and loans to venture capital and angel investing. With over 14 years of hands-on experience in the startup industry, Stephanie is passionate about how business owners can not only survive but thrive in the face of turbulent financial times and economic crises. With a background in media, publishing, finance and sales psychology, and an education at Oxford University, Stephanie has been featured on all things 'entrepreneur' in such prominent media outlets as The Bookseller, The Guardian, TimeOut, The Southbank Centre and ITV News, as well as several other national publications.

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