3 out of 5 British companies shy away from US sales tax complexity

UK firms are incurring fines and staff burnout due to the challenges
Alex Baulf
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250 years after the Boston Tea Party, UK businesses find themselves dealing with tax complexities not far off from the ones that prompted the infamous tea party rebellion in 1773.  For modern businesses looking to have a global presence, the technicalities of selling across borders (particularly in the US) puts the brakes on the ambitions of many. Recent data commissioned by Avalara explores the weight that cross-border tax complexity places on British businesses, and the ways it hampers global scaling and innovation. The findings reveal that 60% of UK business leaders are opting against venturing into new markets due to the complexities of navigating US sales tax compliance – limiting growth and innovation post-Brexit. 

Sales tax is curbing UK business growth

The historical context of the Boston Tea Party gains even more relevance post-Brexit, as 65% of UK tea merchants find that dealing with US sales tax is more challenging than selling into Europe. Compared to calculating VAT in 27 different EU countries, there are over 10,000 different tax jurisdictions across the US. This complexity hurts the economy on both sides of the pond, limiting possibility and opportunity in both markets. In spite of the potential for increased profitability through market expansion, 60% of UK businesses are opting out of global expansion into the US as a consequence of the complexities associated with US sales tax compliance.

In terms of the exact barriers that this complexity creates for businesses, it largely comes down to fines for non-compliance. Over a third (36%) of business leaders have faced fines or penalties due to unintentional non-compliance with US sales tax obligations. As a result, 33% of businesses have paid up to £1000 in fines in the last 12 months. These financial repercussions pose a direct threat to the financial stability and profitability of businesses, potentially impeding their competitiveness in the market.

Complexity is costing UK businesses time and money

Beyond these financial consequences, tax complexity consumes a significant amount of time and resources for UK business leaders, with more than a third (35%) allocating up to 10 hours per month, on average, to tax compliance. 8 in 10 business leaders went as far as to say that taxes are the greatest burden on their business’ shoulders, creating a burden in multiple senses. This time-consuming aspect, coupled with the anxiety and burnout it induces, highlights the need for effective and efficient solutions to help businesses overcome the hurdle. 

As a result of the strain on business time, 77% of business leaders have expressed their inclination to lean on technologies such as artificial intelligence to help reduce the intricacies of tax obligations, including filing, documenting, and reporting. Staff burnout also contributes to businesses difficulties with tax obligations, as 47% of CFOs report that their employees experience burnout related to menial tasks associated with maintaining compliance. With 92% of UK CFOs struggling to recruit talent into their finance and accounting teams, and accounting team numbers at all-time lows, technology such as AI enables teams to maintain business operations (thus profitability) while relieving them of these menial tasks. 

Even though the world is vastly different to 1773 in many ways, the challenges of tax complexity and compliance are ever more relevant to UK businesses. The anniversary marks an inflection point, for business leaders to examine the state of cross border tax relations, taking stock of the hindrances they create for businesses looking to operate globally. In this reflection, it is critical for businesses to adopt innovative solutions to navigate the intricate landscape of US sales tax, which will allow for UK businesses to confidently venture into new markets.

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December 18, 2023