Sales Tax and VAT for Online Sellers (US, UK, Europe, Canada)

Income tax is the tax on what you earn. Sales tax and value added tax (VAT) are different: they are charged on what you sell, collected from the customer and passed on to the government. Online sellers often miss the difference until a customer in another state or country triggers a rule they did not know existed.

This guide gives a plain overview for four regions: the United States, the United Kingdom, Europe and Canada. It is a starting map, not a rulebook. Thresholds, rates, registration rules and platform duties change, and they differ by product and place, so check your own tax authority on the day you act. It is general information, not legal, tax or financial advice.

Consumption tax versus income tax

• Income tax is based on your profit. You report what you earned and pay on the net.
• Sales tax and VAT are based on what the customer pays. You add the tax to the price, collect it and send it to the tax authority.

Money you collect as sales tax or VAT is not your income. It belongs to the tax authority, and spending it is a common beginner mistake. Keep it apart from your profit.

How sales tax works in the United States

The United States has no national sales tax. Most states, and many cities and counties, charge their own, with different rates, rules and lists of taxable goods.

Key ideas:

• Nexus. A seller must collect tax in a state where it has a taxable connection. A physical presence, such as an office, a warehouse or stock, creates nexus.
• Economic nexus. Since a major court decision in 2018, many states also require remote sellers to register and collect once their sales into the state pass a threshold set by that state. Thresholds differ, so check each state's own revenue department.
• Taxable goods and services. Physical goods are often taxable, and digital goods and services are treated differently from state to state.
• Marketplace facilitator laws. In many states, a marketplace must collect and remit tax on sales it facilitates. You may still need to register or file for other sales.
• Resale and exemptions. Some buyers, such as resellers, may be exempt with the right certificate.

A student selling a few items to friends is unlikely to cross any threshold. A seller shipping to many states could cross one sooner than expected.

How VAT works in the United Kingdom

In the UK, a business must register for VAT when its taxable turnover passes a threshold. The government's page on when to register states the registration threshold as £90,000 of taxable turnover, and says you must register if you expect to pass it in the next 30 days. It also says you can register voluntarily below the threshold.

For sellers based outside the UK, the same page says you must register regardless of turnover if you supply goods or services to the UK, with a narrow exemption for fully zero-rated supplies. Check the government's current page, because rules and thresholds change.

Once registered, you charge VAT on your sales, keep records and file returns. You can usually reclaim VAT you paid on business purchases.

How VAT works in Europe

Within the European Union, VAT rates and rules are set by each member state within a shared framework. Selling to consumers in other EU countries brings extra rules, because VAT can be due in the buyer's country. The EU runs a scheme that lets sellers report certain cross-border sales to consumers through one return instead of registering in every state. Eligibility, thresholds and the goods and services covered change, so check the European Commission's VAT pages and your national tax authority.

Sellers outside the EU who sell to EU consumers can also face VAT duties, including on imported goods. Read the current rules before you ship.

How GST and HST work in Canada

Canada charges a federal goods and services tax (GST), and some provinces add a provincial tax or combine them into a harmonized sales tax (HST). Businesses must register once their taxable sales pass a small supplier threshold set by the Canada Revenue Agency, with rules on how and when to register after you exceed it. Foreign sellers who sell to Canadian consumers may also have duties. This guide does not quote the threshold, so confirm the current amount and rules on the Canada Revenue Agency's website.

Digital goods and services

Digital products and services are treated differently from physical goods. In many places, tax depends on where the buyer is, not where you are. A downloadable template sold to a customer abroad may bring tax duties in that customer's country once you pass its threshold.

Some digital platforms say they act as the seller of record and handle this for you. Others leave it to you. The platform page in this section explains why that difference matters.

Marketplaces and platforms

Marketplaces and platforms often collect tax on sales they handle, which can remove a lot of work. Remember:

• your own store's sales are usually your responsibility
• a marketplace collecting tax does not remove your income tax duties
• platform rules differ by country and over time
• you may still need to register in some places

Read the tax section of every platform you use.

Prices, receipts and records

Decide whether your prices include tax, as is common for consumer prices in the UK and Europe, or add tax at checkout, as is common in the United States. Show tax clearly on receipts and invoices where required.

Keep records of:

• each sale, with date, amount, tax collected and buyer location
• tax filings and payments
• exemption certificates or buyer tax numbers, if used
• platform reports on tax they collected

Good records are your defense in an audit.

Common mistakes

• Treating collected tax as income. It must be paid over.
• Ignoring thresholds. Crossing one without registering brings back-tax and penalties.
• Assuming the platform handles everything. Some do, many do not, in every case.
• Using one rate everywhere. Rates differ by place and by product.
• Forgetting digital goods. They are often taxed by buyer location.
• No records. You cannot prove what you collected or why.

When to get advice

Ask a qualified tax adviser or your tax authority before you:

• near a registration threshold
• sell across borders in volume
• sell digital products worldwide
• are unsure whether you or your platform must collect tax

Many tax authorities offer free guidance for small businesses. A short session costs less than a penalty.

International students

Tax residence, visa conditions and income reporting can interact in complicated ways. Check with your school's international office and a tax adviser who understands students. The visa page in this section covers platforms and accounts, and the international students guide covers the rules.

A simple routine for small sellers

Keep it light and regular:

1. Know where your customers are. Record the buyer's state or country for each sale.
2. Watch your totals. Once a month, compare your sales into each place with that place's registration threshold, using the tax authority's own page.
3. Set money aside. If you collect tax, keep it in a separate pot so it is there when a return is due.
4. Check your platform settings. Make sure tax collection is on where it should be, and read what it covers.
5. Calendar the filings. Returns have deadlines, and late filing carries penalties even when nothing is owed.

A routine of fifteen minutes a month is enough for a small seller, and it keeps surprises small.

Selling services and subscriptions

Services and subscriptions can be taxed differently from goods. Some places tax digital services, software and online courses, and some tax only certain services. Recurring billing means the tax follows each payment. If you sell tutoring, design or coaching, check whether your place taxes the service and whether the buyer's location matters.

The bottom line

Sales tax and VAT are collected from customers and paid to the government. Learn the basics for where you and your buyers are, watch registration thresholds, keep collected tax separate from income and keep good records. Platforms may help but do not remove your duties. Check official sources and get advice before you cross a threshold.