Sales tax scares off UK businesses

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Over the last few years, particularly post-Brexit, the complexities associated with UK businesses exploring expansion into new markets, particularly in the US, have cast a shadow over the ambitions of UK enterprises. Despite the opportunity to increase profitability, UK businesses have shied away from international expansion due to the tiers of tax obligations required in the US.

Even now, 250 years after the Boston Tea Party, UK businesses find themselves grappling with tax complexities not too dissimilar from those that triggered the historic tea party rebellion in 1773. Recent data commissioned by Avalara explores the weight that cross-border tax obligations place on British businesses, and the ways it hampers global scaling and innovation.

Sales tax is a major hindrance to UK business expansion

Recent findings show that a significant 60% of UK business leaders are opting against venturing into new markets, specifically the US, due to the impact of navigating these cross-border tax complexities.

Notably, post-Brexit, 65% of UK tea merchants believe that dealing with US sales tax is more challenging than selling into Europe.

This hesitancy is not without consequence, limiting the growth and innovation of UK businesses at a time when they are looking to recover after a difficult last 12 months. UK businesses are taking massive hits to their bottom line due to failing to keep up with US sales tax obligations, with 36% facing fines or penalties due to late payments. This is no small feat as 33% of UK businesses have paid up to £1000 in fines in the last 12 months.

Alex Baulf

Vice President for Global Indirect Tax & E-Invoicing at Avalara.

Businesses are losing time and money to tax obligations

Beyond financial ramifications, confusing US sales tax obligations is putting a strain on business time and resource.

A substantial 35% of UK businesses allocate up to 10 hours per month, on average, to tax compliance, and 8 in 10 UK business leaders cite taxes as the greatest burden on their business. This time-consuming aspect, coupled with the anxiety and burnout it induces, underscores the pressing need for efficient solutions.

Simultaneously, business leaders face the challenge of managing the time dedicated to these tasks with the profitability of the business, expressing that tasks such as filing, documenting and reporting lead to employee retention struggles.

Almost half of CFO’s (47%) have reported employee burnout related to tax compliance tasks. In response, 77% of business leaders express a willingness to leverage technologies such as artificial intelligence (AI) to mitigate the fallout of tax 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, keeping profits afloat.

Although the world has progressed since 1773 when sales tax came to a head between the UK and the US on the Boston harbor, the challenges UK businesses face due to tax obligations associated with overseas expansion remain unchanged.

The Boston Tea Party anniversary acts as a reminder for business leaders to reflect on their cross border tax relations and think of how to relieve the international sales tax burden. It also serves as a call to action for businesses to introduce innovative solutions and update their tech stack to ensure they can navigate the intricate landscape of US sales tax, giving UK businesses the confidence to explore new markets and in turn support the UK economy on its road to recovery.

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Alex Baulf is Vice President for Global Indirect Tax & E-Invoicing at Avalara.