drop shipping warning

[Lucidtoys]

Hello,

As I have returned from China and reviewed the accounting of our drop shipping friends, it didn't make sense how they were making money. I had actually started our business as a drop shipping company selling Nike Jordans in 2003 while studying for my MSc in Business & Enterprise. I met a Chinese bloke and we started our electronics business selling high-end audio-video equipment. After a few years, there wasn't much money in the pipeline and we had to jump ship and start selling HDMI cables. I realized that the drop-shipping model doesn't work in the long term.

The major issue with drop shipping is that the receiver is set as the importer and gets hit with a nasty surprise. The only way to get away with this is to pay duty and VAT in China, which is not reclaimable. So, some companies declare the goods at a low value (illegal).

JinSan does not give special prices to anyone, and the owners don't meet Western clients. You need to know Mandarin to communicate with them since they don't know English and don't bother to learn it.

We thought Starbucks and McDonald's were popular in China, but the answer is no. Starbucks is closing all over, and McDonald's has virtually no customers left.

When you buy an item from a UK supplier, please ask for an invoice that includes VAT. If the supplier's address is in the UK, they might be below the threshold for VAT. However, if they are not in the UK, the VAT threshold does not apply, and they must pay VAT to HMRC. If the VAT is not correctly paid, HMRC will come after the importer.

The English have moved to a new electronic system for clearing goods, and everyone will be subject to checks in the near future.

On the other hand, the Germans are vigilant and now audit 50% of the goods being imported into the country.

[shamus]

Mmm, this is what I feared with the changes to filing requirements that small and micro companies would start to wield published figures against each other but without having the information behind the figures.

I wouldn't believe that the woman in charge of Jinsan does not speak English simply because she chose not to. I'm not saying that she does, I would just not take everything at face value. Also, Eric (head of YL) would be in the same building. I know that he speaks English as I've spoken to him myself.

I lived in the far East and could find it frustrating when people chose to pretend that they did not understand you... Even when you spoke to them in their own language! Or if they really didn't want to communicate they would just ignore your existance. Litterally, you could be stood there trying to communicate something important (I was trying to get this one stupid woman to move her car as she could not move forwards but would not move back but seemed to figure that ignoring a cement mixer was an option) and they would just look straight ahead of them ignoring your existence.

You're quite right, you don't want Star Bucks and McDonalds. In the far East it's KFC and Seven Eleven.

But its so much better than over here. In KFC you get metal cutlery and glasses and they bring you refills to the table if they see you are running low.

I've got one of those MSc's as well Mines from UCL. Best investment I've made as not only does it open doors that even my professional letters have difficulty prying ajar, it was actually fun to do. Much less thinking about how and more about why.

Sure that when you did your MSc. you also had to study the Starbucks model. You make all of your money in one country but set it up so that all of the outlets are franchised from a country with a low tax regime (In the case of Starbucks its was a special arrangement in the Netherlands). All costs including the extortionate head office fee's are in the country making the money so they don't turn a profit but the management fee's are recognised in the profits the low tax regime parent. You also pay your staff at a rate that virtually no tax is paid so the host country makes bugger all.

As its been taught for years under corporate social responsibility studies it wouldn't surprise me if they have cleaned up their act by now. But the moral of the story is that if you are bnig enough then you choose whether you want to pay tax and where you want to pay it.

Anyway, I digress, the declaring goods at a low value used to happen with Chinese companies attempting to be "Helpful" rather than the UK companies asking for their help. However, the UK companies were not having this practice and fought to get the right values put on the documentation. Not least because dolls were being seized due to that specific reason.

Jinsan do give volume discounts but you are not allowed to pass those discounts on. You know yourself, they set a price and you will charge at least that price or they won't let you sell their goods.

The people that we buy bespoke creations from are UK vendors. Also if you look in the small print in their T&C's it states that it is they, not you that are the importer. So, whilst hiccups do happen it is not the responsibility of the recipient who is not the importer

How companies do business is generally not obvious from small company accounts. At best you would be filling in the gaps with assumptions. It does help to be able to compare a companies year on year performance but how it is doing business isn't even hidden in the accounts, it's just not there.

All the best,

Shamus.

[For real]

Thats a valid point. It might be a good idea to include a note as to what the expected TAX will be so customers can make up there mind and or expect it on your website.

[For real]

Originally Posted by shamus

How companies do business is generally not obvious from small company accounts. At best you would be filling in the gaps with assumptions. It does help to be able to compare a companies year on year performance but how it is doing business isn't even hidden in the accounts, it's just not there.

All the best,

Shamus.

As a small company that sell custom made products for shipping over seas I would advise my customer that there may be tax to pay. And that is the only thing that can be done.

[shamus]

Originally Posted by For real

As a small company that sell custom made products for shipping over seas I would advise my customer that there may be tax to pay. And that is the only thing that can be done.

Hi FR,

I was talking about the statutory accounts for small incorporated entities (Less than £10.2m turnover).

A recent change in reporting requirements means that even the smallest companies now need to file an Income Statement (P&L) along with the Statement of financial position.

It has always been with Micro to small entities that it is difficult to discern actual operations from the results. The new changes will not change that but they will cause scenarios like this where companies are looking at each others income and expenditure.

Its always been a case that the HMRC could see everything but now everyone can see everything which I think will see more businesses move away from the protection of the veil of incorporation simply to retain competetive advantage.

Lol, that probably sounds like I'm talking jibberish but sure you could do just the same to me talking about engineering and astronomy stuff

But enough of that.... To the jiggly TPE boobies... Night all

All the best,

Shamus

[For real]

Originally Posted by shamus

Hi FR,



Lol, that probably sounds like I'm talking jibberish but sure you could do just the same to me talking about engineering and astronomy stuff

But enough of that.... To the jiggly TPE boobies... Night all

All the best,

Shamus

Well yes and this is why I have an accountant.

Engineering, is like sex. Best done without a glove

Wait that was not an invite to talk about it, was it

[Lucidtoys]

Hi Shamus,

Thank you for your feedback, and it's great to know that someone understands where I'm coming from. I would love to have a personal chat with you over the phone or face-to-face someday.

China has changed, and there are no longer just 7 Eleven or KFC. They now have their own versions of these and many other companies that are listed on the stock exchange.

The Chinese have robots in every hotel and factory, and all taxi cars are electric, as shown in this article from last year: https://www.drive.com.au/news/2022-b...on-road-costs/. China now has 140 licensed electric car manufacturers.

There are two kinds of bosses in China: those who run the factory (Chinese-speaking) and those who get the sales orders (English-speaking). I always interact with the first boss.

Thank you again for your feedback.

Best regards,

[The-Doll-House]

I have no problems with HMRC charging my UPS account for the import VAT and duty.
There have been no changes from an HMRC perspective so nothing has changed - save the electronic way of paying.

Can you please identify the legislation that has changed to make this difference in importation, as I have seen nothing indicating this at this point in time.

[Lucidtoys]

Great to know Phil,

CDS has replaced CHIEF

(https://www.gov.uk/government/public...ptember%202022.)

We have other correspondence between HMRC and ourselves regarding the above matter.
Regards

[Lucidtoys]

While it might seem amusing to some that a competitor's hand is stuck in the proverbial jar, I've been observing a more serious matter unfold. I've noticed that Border Force is increasingly vigilant concerning individuals importing dolls from China.

The issue of VAT evasion isn't new to this forum. I've raised it before, emphasizing that sellers are legally obligated to remit 20% of the selling price to HMRC. Moreover, many other countries have laws stating that if profit is generated within their jurisdictions, a withholding tax should be levied on those transactions. This ensures that the host country benefits financially from the sale of goods to its citizens.

It's alarming to witness some renowned platforms, including the most prominent doll forum, seemingly neglect this crucial issue. Additionally, numerous influential members within our community seem to be endorsing these non-compliant vendors.

I urge everyone to critically evaluate the information being shared here. It's essential to be aware that some members might be promoting companies and suppliers known for VAT evasion. An example that stood out was a thread titled "8 months wait for a broken ***** neck and a tube of...". This can be found easily with a simple Google search.

Our goal is not to instigate disputes within this forum. This information is public knowledge. However, as responsible members of this community, it's imperative that we are informed and promote fair and legal practices in the market.