You do not have to pay sales tax in the UK – instead, you are subject to what is known as VAT (Value Added Tax), a tax which is payable on most goods and services. Generally, most products will include VAT already in the price you will find in shops and online. However, there are some exemptions in place.
But, what about US sales tax and how does this work if you live in the UK? With the rise of global commerce, more and more people are now required to sell compliantly. Here’s a quick guide to how US sales tax works and whether or not you are required to pay it if you live in the UK.
What Is US Sales Tax and How Does It Work?
US sales tax, unlike VAT in the UK, is a sales consumption tax. In short, it is a tax paid on the final sale by a customer to a business. How much it costs will depend on the state in question, but the sales tax rate generally varies between 4% to 7%.
In the US, the business that sells a good or service is responsible for collecting sales tax and subsequently remitting it to the government. Businesses can calculate their own sales tax on their behalf, however, many opt for companies or platforms that include automated sales tax software (for example, a site like https://yondatax.com/).
Is VAT the Same As Sales Tax?
The main difference between US sales tax and VAT in the UK is that the latter is already included at the point of checkout for consumers. Furthermore, the UK has simple yet varying rates for VAT which are charged as follows:
- A standard rate (20%) is charged on the majority of goods and services
- A reduced rate (5%) is charged on some goods and services e.g. child car seats and some energy-saving home materials
- A zero rate (0%) applies to most foods and children’s clothes
Meanwhile, in the US, the rules for sales tax vary by product and state. It is, furthermore, paid by the consumer but the responsibility of the seller to then remit it to the appropriate tax authority.
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Who Pays US Sales Tax in the UK?
So, we’ve got the basics covered. Now, let’s get down to business. Here is a rough tax guideline for UK residents concerning US sales tax and VAT:
1. Importing Goods to the UK from the US
Firstly, if you import goods from the US to the UK you will not be required to pay US sales tax but instead will pay the standard UK tax rate of 20%. However, businesses can then later reclaim the VAT paid on their VAT return (it’s complicated, we know!).
2. VAT on Services Between the UK and US
There is no UK VAT on goods sold to either B2B (Business to Business) or B2C (Business to Customer) customers in the US.
3. Selling Goods to the US from the UK
If you sell goods to the US from outside of the country then you will be subject to the sales tax of the state it is sold to, or “within”. You can find sales tax by state charts widely online as well as calculators who can help you do the maths.
It is important to note that if you are a UK business you may need to register for US sales tax if you are selling goods to the US. For instance, those using online marketplaces like Etsy, Amazon or eBay will need not worry as these platforms will calculate, collect and remit your US sales tax on your behalf.
However, if you’re using a different platform, such as Shopify, or your own website then you will need to register. Rest assured, this can be done by yourself or through a sales tax platform who can help cover all your tax worries.
What’s more, international sellers also need to be aware of US import tax. Any products worth over $800 will be subject to import tax which is paid to the government. But, how much you pay will also depend on the product you are importing.