CT600 for Dropshipping Companies
Running a dropshipping company is one of the most accessible ways to start an online business — you sell products, your supplier ships them, and you keep the margin. But when it comes to your company tax return (the CT600), dropshipping businesses have some specific considerations worth understanding before you file.
This guide explains how to prepare your CT600 if your limited company operates a dropshipping business, what counts as income and allowable expenses, and where directors commonly go wrong.
What Is a Dropshipping Company's Taxable Profit?
Your limited company pays corporation tax on its taxable profits — broadly, your revenue minus your allowable business expenses.
For a dropshipping business, your turnover is the full amount your customers pay you for products. This is the sales price you charge, not the amount you pay your supplier.
Your cost of goods sold (COGS) — the amounts you pay suppliers for products — is deductible as a trading expense. So if you sell a product for £50 and pay your supplier £30, your gross profit is £20.
Beyond product costs, you can also deduct other allowable expenses, such as:
- Platform fees — Shopify subscriptions, WooCommerce hosting, marketplace listing fees
- Payment processing fees — Stripe, PayPal, and similar transaction charges
- Advertising and marketing — Google Ads, Facebook Ads, influencer fees
- Software subscriptions — order management tools, inventory trackers, email marketing platforms
- Website costs — domain registration, hosting, theme purchases
- Professional fees — accountant or bookkeeper fees
- Bank charges — business account fees
- Director salary — if you pay yourself a salary through PAYE, this is deductible
- Home office costs — if you work from home, a proportion of your costs may be claimable
Corporation Tax Rates for Dropshipping Companies
Once you have calculated your taxable profit, the corporation tax rates that apply are:
- 19% — small profits rate, for companies with profits of £50,000 or less
- 25% — main rate, for companies with profits of more than £250,000
- Marginal relief — for profits between £50,000 and £250,000, effective rates taper between 19% and 25%
Most new dropshipping businesses will fall within the 19% small profits band, particularly in their early years.
These thresholds are proportionately reduced if your accounting period is shorter than 12 months, or if your company has associated companies. For a detailed explanation of how marginal relief works, see our guide on Marginal Relief for Corporation Tax.
Capital Allowances for Dropshipping Businesses
Dropshipping companies typically do not hold physical stock (that is handled by the supplier), but you may still have capital expenditure to claim:
- Computer equipment — laptops, monitors, tablets used exclusively for the business
- Office furniture — desks and chairs if you have a dedicated workspace
- Camera equipment — if you produce your own product photography
- Business mobile phones
Reporting Your Dropshipping Income on the CT600
When you file your company tax return, your dropshipping business income is reported as trading income. The key figures come from your company accounts, which must be prepared alongside the CT600.
Here is how the main figures flow through:
| Accounts line | CT600 relevance |
|---|---|
| Turnover | Included in total trading profit/loss |
| COGS and expenses | Deducted to arrive at trading profit |
| Trading profit/loss | Flows to trading profits box |
| Capital allowances | Reduces taxable profits |
| Corporation tax | Calculated from adjusted taxable profit |
Common Mistakes Dropshipping Directors Make
1. Confusing gross revenue with profit
Some directors accidentally enter their full sales revenue as taxable profit, rather than calculating the net profit after deducting supplier costs and expenses. Your accounts should clearly separate turnover from cost of goods sold.
2. Missing platform and transaction fees
Payment processor fees (typically 1.4–2.9% of each transaction) and marketplace or platform fees add up significantly over a year. These are fully allowable expenses and should be tracked carefully.
3. Not accounting for chargebacks and refunds
If you process refunds or lose chargeback disputes, your actual net revenue will be lower than your gross sales. Make sure your bookkeeping handles these correctly so your accounts reflect actual income received.
4. Treating director drawings as a salary
If you take money from your company as a dividend rather than a salary, this is not a deductible expense for the company. Dividends are paid from post-tax profit. Only PAYE salary payments to directors reduce the company's taxable profit.
5. Missing the filing deadline
Your CT600 must be filed within 12 months of your company's accounting period end. See our guide to company tax return deadlines for more detail on how the deadline is calculated.
Foreign Supplier Costs and Currency
Many dropshipping businesses use suppliers in China, the USA, or elsewhere and pay in foreign currencies. For your CT600, you will need to convert these costs to sterling using the exchange rate at the time of payment (or an acceptable average rate for the period).
HMRC accepts various methods for currency conversion — keep records of the exchange rates you use so you can justify them if queried.
VAT Considerations
Corporation tax and VAT are separate obligations. The CT600 is not a VAT return. However, if your turnover exceeds the VAT registration threshold (check the current figure on GOV.UK, as it changes), you must register for VAT separately.
VAT can significantly affect your cash flow as a dropshipper, particularly if you are selling to consumers (B2C) rather than businesses (B2B). Overseas sales may also have import VAT and customs duty implications depending on where your suppliers are located.
How to File Your Dropshipping Company's CT600
You can file your company tax return using corporation tax filing software, through an accountant, or via HMRC's online service. Note that HMRC's free filing service is being withdrawn — see our guide to HMRC's free CT600 alternative for what to use instead.
For e-commerce businesses more broadly, our CT600 guide for e-commerce companies and our specific guide for Amazon seller CT600 filings share many of the same considerations around online income reporting and are worth reading alongside this guide.
Summary
Dropshipping companies are straightforward from a tax perspective — the main complexity lies in accurate bookkeeping of supplier costs, platform fees, and payment processor charges. Once your accounts are prepared correctly, your CT600 follows naturally. Most dropshipping companies will pay corporation tax at the 19% small profits rate, though check the current rates on GOV.UK and consider whether marginal relief applies as your business grows.