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There are very clear examples here

http://www.hmrc.gov.uk/guidance/selling/examples.htm

So the long and short of it is, you do not have to pay VAT until you're net income is over £61,000 a year but if you're regularly dropshipping you have to notify R and C and keep a record of all sale transactions and fill out a tax return at the end of the year?

The VAT registration threshold is currently £68,000, but yes, that's basically it.

Once you begin selling you must inform HMR&C. You need to keep records of all your business income and expenditure, and enter the information in your tax return. Remember you can also claim for use of home as office, and for business tools & equipment (e.g. your computer).

Thanks so much Maggi oh and if you're earning below £5000 you can apply for the certificate of low income i think it was? Would student loans count as part of net income?

I assume that you are talking about the small earnings exception from Class 2 NI contributions?

The small earnings limit is currently £5,075... if your income from self-employment is likely to be below that level, you can apply for the certificate of exception. Student loans would not enter the equation... qualification is based entirely on the level of self-employed earnings.

For tax purposes, you would of course have a personal allowance... this is set off against your earnings, both employed and self-employed... and you only pay tax on the earnings over and above that personal allowance.

Don't you just love it when Maggi talks dirty