If your business sells from the UK into the US, you’ve probably faced a common cross-border tax question: how does value-added tax (VAT) apply once your products or services leave the country? The answer depends on several details, such as zero-rating rules, export evidence, and how His Majesty’s Revenue and Customs (HMRC) defines the location of a sale.

In 2024, the UK exported £137 billion in services to the US, representing 27% of all UK services exports.

Below, we’ll cover how VAT from the UK to the US works, how “place of supply” rules affect this process, and how automated tools can help you keep tax compliance consistent across markets.

What’s in this article?

• How do you calculate VAT for UK-to-US transactions?
  
• What tools help businesses manage VAT compliance for cross-border sales?
  
• How does VAT treatment influence pricing, margins, and reporting for UK-to-US transactions?
  
• What VAT challenges do businesses face when exporting to the US?
  
• How can businesses implement effective compliance processes for UK-to-US VAT?
  
• How Stripe Tax can help
  

How do you calculate VAT for UK-to-US transactions?

VAT applies to UK-to-US transactions only when the UK considers the sale to have taken place inside its borders and only if the seller is VAT-registered.

VAT registration becomes mandatory once a business’s annual VAT taxable turnover crosses the threshold of £90,000, though some businesses register earlier to reclaim VAT on costs. In all cases, whether VAT must be charged on a sale depends on place of supply rules:

• What it determines: Place of supply rules dictate which country has the right to tax a sale. They establish whether a transaction is treated as happening in the UK, in the US, or somewhere else.

• How it differs for goods and services: For goods, place of supply usually follows the physical movement of the product. If it leaves the UK, the sale is treated as an export. For services, place of supply depends on the customer and what type of service is being provided.

• Why it matters in practice: Place of supply dictates whether VAT appears on the invoice. Getting it wrong can mean charging VAT when you shouldn’t or owing VAT you never collected, which is why documenting your reasoning is part of staying compliant.

Here’s how the system treats different types of sales:

• Goods shipped to the US: These goods are zero-rated for VAT as long as they physically leave the UK. You don’t charge VAT, and you can still reclaim VAT on your inputs. In these situations, HMRC requires proof of export, such as courier documentation, export records, or digital tracking. Without these, HMRC might reclassify the sale as taxable at the standard VAT rate.

• Services sold to the US: Most nondigital services sold to US customers treat place of supply as where the supplier is. This means UK VAT treatment applies. Nondigital services sold to US businesses treat place of supply as where the customer is. It’s outside the scope of UK VAT, and no UK VAT is charged.

• Digital services sold to the US: UK place of supply rules treat digital services sold to the US as supplied where the customer is. It’s outside the scope of UK VAT, and no UK VAT is charged.

What tools help businesses manage VAT compliance for cross-border sales?

Managing VAT for UK-to-US sales is easier when your systems do most of the heavy lifting. Many tools are available to help businesses with this task, including:

• Automated tax calculators: These systems apply the correct VAT or zero-rating in real time, based on product type and customer location. This reduces manual decision-making and helps avoid VAT mischarges.

• Invoicing and accounting software: These platforms let you set tax codes for exports, generate compliant invoices, handle currency conversions, and record sales accurately for VAT returns.

• Customer classification features: These systems record whether a customer is a business or an individual, which ensures services receive the right VAT treatment. These tools can store status information for your US business customers in case HMRC needs to access it.

• Audit-ready documentation workflows: These automatically save shipping records, export documents, and location evidence. They keep proof close in case of HMRC reviews.

• Advisory and compliance platforms: Accountants and VAT specialists often use advanced reporting and filing systems. These ensure your returns match your underlying transactions and keep VAT treatment consistent as your US volume grows.

How does VAT treatment influence pricing, margins, and reporting for UK-to-US transactions?

VAT treatment shapes how businesses set prices. As cross-border business increases, this becomes important for margins and reporting.

Here are some factors VAT can influence:

• US pricing strategies: Zero-rated exports can make your net price more competitive in the US. Many businesses display prices without VAT; UK customers see it added at checkout, while US customers see (and pay) the VAT-free amount. However, US import duties or state use taxes could apply on arrival, so being up front about these keeps price expectations realistic.

• Business margins: Because many UK-to-US transactions are zero-rated, you can still reclaim VAT on your costs. This protects your margins and can turn into refunds if most of your turnover is exports.

• Accounting schemes: Businesses with substantial export or zero-rated sales will typically want to use standard VAT accounting because it allows input VAT recovery without charging VAT on zero-rated exports. If using the Flat Rate Scheme, the business can end up paying VAT to HMRC on sales in which it didn’t charge VAT to the customer, which effectively turns VAT into a cost.

• Invoicing and reporting: Each of your export sales will appear on your VAT return, whether or not VAT was charged. Add invoice notes, such as “0% VAT, zero-rated export” to maintain transparency and stay audit-ready.

What VAT challenges do businesses face when exporting to the US?

Exporting from the UK to the US typically removes VAT from the customer-facing experience. But in the background, it can add pressure for businesses.

Here’s what can be difficult:

• Interpreting place of supply rules for services: Determining where VAT applies can be complicated, especially for services that blend human input and digital delivery.

• Gathering export evidence: To zero-rate goods, you must prove the goods left the UK. Missing or incomplete documentation is common and can trigger a retroactive VAT bill even when the export took place.

• Coordinating across teams: Sales, fulfilment, and finance are all involved in VAT treatment. A single break in the chain, such as delivering goods to a UK address or issuing an invoice with the wrong tax code, can undermine compliance.

• Handling customer communication: US customers aren’t as familiar with VAT. They might ask why an invoice shows VAT at 0% or, in rare cases in which VAT does apply, why a UK tax appears on a service. Good communication helps prevent confusion.

• Waiting for VAT refunds: Export-heavy businesses with input VAT that outweighs output VAT might rely on regular VAT refunds. HMRC audits can delay repayments and tighten liquidity.

How can businesses implement effective compliance processes for UK-to-US VAT?

Businesses should make compliant VAT treatment the standard. A few steps can help ensure your approach is the right one.

These steps include:

• Review your VAT registration position: If you’re registered for VAT, confirm you’re on the right accounting scheme for an export-heavy business. If you’re not registered but exporting regularly, consider whether registration would improve cash flow by allowing input VAT recovery.

• Formalize invoicing rules for US customers: Standardize tax codes, such as zero-rated, outside scope, or standard-rated, and embed them in your billing system. Every invoice to a US customer should include the VAT treatment and its underlying reasoning.

• Use automation: Tools that apply tax logic based on product type and destination reduce manual errors and keep treatments consistent.

• Create a repeatable export evidence workflow: Decide how you’ll capture courier records, customs confirmations, and customer location data. Store everything in a way that’s consistent and easy to access so you can quickly satisfy HMRC if the authority asks for verification.

• Run internal audits: Spot-check recent US transactions to confirm correct VAT treatment, documentation, and reporting. This will help you catch problems early, and you can use that information to repair your processes.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT, and goods and services tax (GST) on both physical and digital goods and services—in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard, or using our powerful application programming interface (API).

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details—saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax, or get started today.