UK US Ecommerce Tax Strategy: Cross-Border VAT Tax Guide

Introduction

Growing an online store that sells to both the UK and the US often involves navigating tax terrain. A UK-US Ecommerce Tax Strategy helps ecommerce leaders plan for VAT and sales tax obligations, avoid costly mistakes, and build compliance into their growth model.

This blog explains how UK VAT rules and US sales tax requirements differ, why they matter now more than ever, and what ecommerce founders, CFOs, and tax directors need to prioritise. In the evolving world of cross-border online retail, smart tax strategy isn’t an afterthought—it’s essential for profitability and compliance.

Understanding the Basics: VAT vs Sales Tax

At the heart of any UK-US Ecommerce Tax Strategy lies a fundamental difference: the UK uses Value Added Tax (VAT), while the US relies on sales tax imposed at the state and local levels.

UK VAT Fundamentals

In the UK, VAT applies to most goods and services sold to consumers. Once an ecommerce business exceeds the VAT registration threshold (currently £90,000 in annual taxable turnover), it must register for VAT and account for it on sales. VAT is charged at each stage of supply and remitted to HM Revenue & Customs (HMRC). The standard UK rate is generally 20%, with some reduced categories or zero-rated categories also affecting cross-border sales: online marketplaces may need to collect and remit VAT for third-party sellers, especially for low-value consignments where marketplace liability rules apply. (gov.uk: Marketplace VAT guidance)

US Sales Tax Basics

In contrast, the United States does not have a national VAT. Instead, 45 states and many local jurisdictions impose a sales tax on retail sales of tangible personal property and some services. Each state sets its own rates, rules, and thresholds, and ecommerce sellers must navigate a patchwork of requirements. (IRS: Sales Tax Guidance)

Sales tax is typically collected at the point of sale and remitted to the relevant state and local authorities, usually on a monthly or quarterly basis, depending on the jurisdiction.

UK VAT Obligations and eCommerce VAT Apply

A principal component of any effective UK-US E-commerce Tax Strategy is understanding when UK VAT obligations are triggered. UK VAT registration is mandatory for UK-based e-commerce businesses once taxabletheir turnover exceeds the registration threshold. Non-U registration threshold: K businesses selling into the UK may also need to register immediately if they make taxable supplies there or hold stock in the UK. (gov.UK: VAT UK Registration)

Overseas sellers must also consider VAT on imported goods. If an online marketplace sells goods into the UK on behalf of overseas sellers, the marketplace may be responsible for charging and accounting for VAT on goods up to a specified threshold at the point of sale. (gov.UK: VAT on imported goods)

VAT on Low-Value Goods

The UK implemented reforms requiring VAT to be charged at the point of sale when the value exceeds the threshold, meaning sellers and marketplaces must correctly capture VAT during checkout rather than relying on customs to collect it post-import. (gov.UK: VAT UKw-value imports)

Compliance and Record-Keeping

UK VAT obligations require accurate record-keeping and timely VAT returns. Digital record-keeping systems compliant with Making Tax Digital (MTD) are increasingly relevant, especially for larger e-commerce businesses. (HMRC: Making Tax Digital)

US Sales Tax Obligations for E-commerce Nexus and Thresholds

Unlike the UK’s uniform VAT system, the US has varied sales tax obligations under state law. A core concept of the UK-US Ecommerce Tax Strategy in the US is economic nexus, meaning that a seller’s level of sales or number of transactions in a particular state triggers a requirement to collect and remit sales tax there. This standard arose from the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc.

Most states set economic nexus thresholds around $100,000 in sales or 200 transactions annually, though exact thresholds vary by state. Sellers must monitor their sales by state carefully to avoid missing registration and remittance duties. (Sales Tax Institute: Economic Nexus)

Registration and Sales Tax Permits

Once a seller determines that it has nexus in a state, it must register with that state’s tax authority to obtain a sales tax permit. Registration requirements differ by state. Failure to register and collect paid taxes can result in back taxes, interest, and penalties. (Avalara: US Sales Tax Registration)

Rates and Sourcing Rules

Sales tax rates vary by state and locality. Most states determine the tax rate based on the destination of goods shipped. Several states also permit origin-based sourcing, adding complexity. (TaxJar: Sales Tax Rules)

Crafting a Strategic UK-US EC Tax Strategy

Map Out Global Tax Obligations

Identify where VAT and sales tax are triggered:

• Current and projected sales volumes in each market
• Whether goods are stored locally (creates physical presence)
• Marketplace collection obligations

Mapping obligations early reduces surprises and helps tailor pricing and checkout logic.

Leverage Automation and Compliance Tools

Manual compliance is unsustainable at scale. Invest in platforms that automate VAT calculation, sales tax collection, and filings. (Avalara: Tax Automation)

Monitor Changes and Evolve with Law

Tax laws evolve constantly. Post-Brexit VAT reforms changed UK VAT obligations, requiring marketplace liability and point-of-sale collection to standards that continue to evolve. Grow VAT and GST Guidelines)

Pricing and Customer Experience

Tax strategy must align with customer expectations. Transparent pricing improves conversion. UK consumers expect VAT included in display prices; US customers often see sales tax at checkout.

Professional Support and Risk Management

Expert support ensures e-commerce businesses avoid mistakes, optimise tax positions, and maintain audit-ready compliance. (ICAEW: Cross-Border Tax)

Common Pitfalls in UK-US Tax Strategy

• Ignoring US nexus rules (Sales Tax Institute)
• Misconfiguring VAT collection (HMRC VAT guidance)
• Lack of integrated systems for filings and reporting (Avalara Tax Solutions)

Call to Action

A robust UK-US e-commerce tax strategy to profitably grow online retail operations across borders. Tax, we help e-commerce businesses build tailored VAT and sales tax frameworks that ensure compliance, reduce risk, and support strategic scaling.

Contact us at hello@jungletax.co.uk or call 0333 880 7974 to develop a strategy that fits your growth goals and avoids costly errors.