Black Friday sales may topple tax thresholds in the EU and US

As the holiday shopping season approaches, UK businesses will be under more scrutiny from tax authorities across the globe regarding their international sales.

For UK-based companies that buy and sell from the European Union and the United States, there are a number of remote seller sales tax laws to be aware of.

As fourth-quarter sales will be larger than the preceding three quarters combined, large-scale EU sellers may be pushed over both the EU VAT Distance Selling and US remote seller tax thresholds.

Richard Asquith, vice president of global indirect tax at Avalara, said: “The tax authorities in the EU and US have been investing heavily in staff and analytic software to spot sellers who have passed these thresholds.

“A number – including Germany, France, Italy and Austria – are requiring marketplaces to report sellers’ transactions in detail. In the US, similar marketplace responsibilities have been rolled out.”

Following the 2018 Wayfair ruling in the US Supreme Court, nearly all US states can now tax foreign sellers for the first time. Additionally, for many sellers, this is the first major holiday season that this law is in place for.

How much can my client sell?

With Black Friday and Cyber Monday fast approaching, retailers will be pushing out discounts and price breaks to capitalise on holiday sales. While the US is a large market, it is important for tax advisors to know where the financial limits are and where to draw the line.

“Many new marketplace obligations include the power for tax authorities to force platforms to block offending sellers,” Asquith said. “This means it is more important than ever that sellers identify if they are over any tax threshold.”

Some states operate on a $100,000 sales limit or delivering over 200 products into the state, whichever comes first. It is important to remember that companies have to pay both federal tax, governed by the Internal Revenue Service (IRS), and state tax, which is governed by the state and ranges from 0% to 9.43%.

For companies exporting goods into the EU, HMRC says that UK VAT should be charged until “the value of your supplies in a calendar year exceed the distance selling threshold in that country.”

Additionally, if a company trades above the UK Intrastat threshold, all distance sales that were made to a non-taxable person should be reported on a Intrastat Supplementary Declaration form—even if the distance sales from the UK are “below the distance selling threshold in the member state of arrival,” according to HMRC’s online guidance.

How should my clients prepare?

Before the season kicks off, accountants should double-check that their clients are VAT registered and have the correct, current licensing in place to sell goods overseas.

“The authorities increasingly have teams who trawl marketplace websites for sellers, and then compare them to their tax compliance status,” Asquith said. “But increasingly, the authorities are putting the requirements on the marketplaces to verify sellers are up-to-date.

“Countries like the UK, Austria, Germany and France are obliging the marketplaces to check VAT registration documentation. In the US, almost half of the states oblige the marketplace to identify the sales tax due, collect it and remit directly to the state tax authorities.”

To avoid any potential problems, Asquith also recommended that each business checks which, if any, states require the business to register. If they must register, they should also check if they have any back taxes to declare and explore payment options for them.

“Many states have forgiving voluntary schemes which limit any fines,” Asquith said. “Registrations are then quite straightforward and can be done on state websites.

“The challenge then becomes calculating and reporting the taxes as there are over 12,000 taking jurisdictions in the US—from state to country, to city to municipality. Many of this is now automated, with tax software solutions which plug into your ERP (enterprise resource planning) or e-commerce cart, extract the invoice data live and perform real-time sales tax calculations.”

Although software can make this process run smoothly, Asquith also recommends that businesses find a local advisor who can assist with more intricate, state-specific tax laws that software may not catch.

While EU VAT and US sales tax laws can be confusing, they should not stop any UK company from capitalising on Black Friday sales and expanding their business across the pond, so long as all the required forms have been completed and declared.