by Ariful | Aug 24, 2026 | E-Commerce
TITLE: UK Marketplace VAT: Prepare for Platform-Level Changes and Strengthen Your Ecommerce Accounting
UK marketplace VAT rules are under review. At the same time, HMRC is using more platform data to test whether ecommerce records are complete and accurate. This week, you should focus on preparing your systems for greater platform-level VAT accountability while keeping growth decisions grounded in reliable accounting data.
Prepare now for proposed UK marketplace VAT changes
On 23 June 2026, HM Treasury and HMRC published a consultation on extending online marketplace VAT liability. The consultation closed on 18 August 2026, and the government response is pending.
The proposal would extend existing online marketplace rules to certain sales made by UK-based businesses where the goods are in the UK at the point of sale. The policy is aimed at reducing VAT non-compliance and creating a more consistent position between online sellers and high-street businesses.
The proposal is not yet law. However, sellers should prepare because the likely operational impact could be significant.
The consultation considers two main ways to reduce the impact on smaller businesses:
- A Minimum Platform Threshold (MPT). The lead proposal is £90,000 per platform.
- A possible VAT rate relief for UK businesses below the VAT registration threshold.
The proposed £90,000 MPT would apply separately to sales made through each platform. It would not replace the normal VAT registration rules. Your total taxable turnover would still need to be monitored across all sales channels.
Under the current HMRC VAT threshold guidance, you generally need to register for VAT when your taxable turnover exceeds £90,000 in a rolling 12-month period. The current optional deregistration limit is £88,000.
Understand the proposed deemed supply
For VAT-registered businesses, the consultation currently envisages a deemed zero-rated supply between the seller and the online marketplace for relevant sales. The marketplace would then charge VAT to the consumer at the applicable rate and account for it on its own VAT return.
This could change how you record marketplace sales.
You may no longer hold the output VAT collected on certain marketplace transactions before paying it to HMRC. Instead, the platform may collect and account for that VAT directly. This could affect:
- Your settlement reports.
- Your VAT return coding.
- Your cash-flow forecasts.
- Your treatment of marketplace fees.
- The way you reconcile sales to bank receipts.
The consultation does not propose changing the VAT rate applicable to the goods. If a product is already zero-rated, it would remain zero-rated. The proposed deemed zero-rated supply is an accounting mechanism between the seller and the platform. It is not a general zero-rating of all marketplace sales.
The government is also considering whether to exclude second-hand goods sold by businesses from the extended rules or include them while preventing marketplace sales from using the Second-hand Margin Scheme. No final decision has been made.
If you sell refurbished electronics, used clothing, collectibles, or other second-hand products, keep purchase evidence and margin calculations separately. This will help you respond quickly when the final rules are published.
Audit every platform before the rules change
Do not wait for a government response before checking your data. Start with a platform-by-platform review.
Build a complete seller data file
For every sales channel, record:
- Legal entity name.
- Trading name.
- Registered business address.
- VAT registration number.
- Marketplace account owner.
- Bank account details.
- Warehouse and inventory locations.
- Countries where customers are based.
- Whether the platform collects VAT, GST, or sales tax.
- Whether the platform reports gross sales, net settlements, or both.
Keep these details consistent. Differences between your accounting records, marketplace profile, VAT registration, and bank information can create avoidable questions during a compliance check.
Consolidate sales across all channels
Do not rely on splitting sales across Amazon, Shopify, eBay, Etsy, TikTok Shop, or other platforms to remain below a threshold. The consultation specifically recognises the risk of businesses disaggregating sales across multiple online marketplaces or accounts.
Your internal reporting should show:
- Total sales across all platforms.
- Sales by individual platform.
- Sales through your own website.
- Sales by customer location.
- Sales by inventory location.
- Tax collected by the platform.
- Returns, refunds, cancellations, and chargebacks.
An amazon seller accountant uk can help you separate Amazon settlements from underlying customer sales. A provider supporting shopify accounting uk can also help you distinguish Shopify order data, payment processor settlements, and actual bank receipts.
Reconcile VAT returns to platform reports
Your VAT return should be supported by records that explain the difference between:
- Gross customer orders.
- Discounts and promotions.
- Refunds and returns.
- Platform commissions.
- Fulfilment charges.
- VAT collected by the platform.
- Currency conversion adjustments.
- The final settlement paid to your bank.
This is central to effective ecommerce bookkeeping uk. A bank-feed balance alone is not enough. It does not show what was sold, where it was sold, or which tax was collected before settlement.
Expect more data-driven HMRC compliance checks
HMRC increasingly uses information from marketplaces and digital platforms to identify inconsistencies. Digital platform reporting also means that data held by platforms may be compared with information in tax returns and VAT records.
This does not mean every difference is an error. Timing, refunds, currency conversion, and platform fees can all create legitimate variations. However, you must be able to explain those variations.
Complete this weekly control:
- Download marketplace sales and settlement reports.
- Check that the legal entity and VAT number are correct.
- Match orders to settlement periods.
- Review unusual refunds and chargebacks.
- Confirm that platform VAT figures agree with your VAT working papers.
- Investigate unexplained differences before filing.
Maintaining this process will reduce year-end corrections and make any HMRC information request easier to manage.
Use weekly numbers to control growth
Good accounting does more than support compliance. It shows whether growth is creating value or simply increasing activity.
Review these measures every week.
Measure contribution margin by SKU, channel, and country
Revenue is not profit. Calculate the contribution margin after product cost, fulfilment, platform fees, advertising, payment fees, returns, and delivery costs.
Compare performance by:
- Product SKU.
- Amazon marketplace.
- Shopify store.
- Country.
- Fulfilment location.
- Advertising campaign.
This helps you identify products that generate sales but consume cash.
Monitor cash runway before buying
by Ariful | Aug 24, 2026 | US Updates
TITLE: US Tax and Nexus Changes in August 2026: What International Sellers Need to Know
If you sell from the UK, Canada, Australia or the EU into the USA, three August 2026 developments deserve attention:
- IRS interest rates remain unchanged for the fourth quarter of 2026.
- Kentucky has removed its 200-transaction economic nexus test.
- The 2026 Form 720 includes new compliance requirements for certain excise-tax and remittance-transfer activities.
These changes will not affect every ecommerce or digital business in the same way. The key is to separate ordinary sales tax compliance from federal information returns, excise taxes and withholding obligations.
Review the IRS rates before a balance becomes expensive
The IRS has confirmed that the fourth-quarter 2026 interest rates will hold at the third-quarter levels.
For 1 October to 31 December 2026, the published rates are:
- 7% for standard corporate and non-corporate underpayments.
- 7% for non-corporate overpayments.
- 6% for corporate overpayments.
- 4.5% for the portion of a corporate overpayment exceeding $10,000.
- 9% for large corporate underpayments.
- 4% for IRC section 6603 deposits.
The IRS compounds these rates daily. This means a late balance can grow steadily even when the original error appears small.
For example, if an international seller has a $10,000 federal underpayment outstanding, the annual rate is 7% before daily compounding and any applicable penalties. A delayed reconciliation can therefore create a larger payment obligation than expected.
The rates apply to qualifying federal tax liabilities, including liabilities connected with Form 720. They do not create a separate interest-rate regime for overseas businesses.
Read the IRS quarterly interest rates and Revenue Ruling 2026-15 when reviewing a balance or payment plan.
Recheck Kentucky nexus after the August rule change
Kentucky changed its remote-seller and marketplace-provider rules from 1 August 2026.
House Bill 757 removed the economic nexus test based on 200 or more sales transactions. The $100,000 gross-receipts threshold remains the key economic nexus measure for remote retailers and marketplace providers under the updated rules.
This matters because transaction volume alone will no longer trigger Kentucky registration under the repealed test. However, a seller can still have an obligation if its Kentucky gross receipts reach the applicable threshold or if it has another form of nexus, such as inventory or other physical business activity.
Practical example for an international Amazon seller
Imagine a UK Limited Company selling through Amazon FBA:
- Kentucky sales are $120,000 during the current calendar year.
- The business has 140 Kentucky orders.
- Amazon collects tax on marketplace transactions where required.
The business is below the former 200-transaction test but above the $100,000 sales threshold. It should therefore reassess its Kentucky registration, filing and recordkeeping position.
Marketplace collection does not automatically remove every seller obligation. You should reconcile:
- Marketplace-facilitated sales.
- Direct Shopify or WooCommerce sales.
- Returns and refunds.
- Kentucky destination receipts.
- Tax collected by the platform.
- Any inventory stored or moved within the state.
The Kentucky Department of Revenue’s 2026 SSUTA recertification confirms the removal of the 200-transaction registration standard and the related August changes.
Check whether Form 720 applies to your business
Form 720 is the Quarterly Federal Excise Tax Return. It is not a routine form for every international ecommerce seller.
You generally need to consider Form 720 if your business is liable for, or responsible for collecting, one of the federal excise taxes listed in Parts I or II of the form.
The current Form 720, revised June 2026, includes several important updates.
New 1% remittance-transfer excise tax
The 2026 instructions explain that the One Big Beautiful Bill Act created section 4475. This imposes a 1% excise tax on certain remittance transfers occurring after 2025.
This is mainly relevant to businesses operating as remittance-transfer providers or handling qualifying money-transfer transactions. It is not a new tax on every payment made by a UK, Canadian, Australian or EU seller to a US supplier.
If the rule applies to your business, you may need to:
- Identify qualifying transfers.
- Calculate and collect the tax where required.
- Track transactions and supporting records.
- Make required electronic deposits.
- Report the liability on Form 720.
The IRS instructions also mention limited penalty relief for certain remittance-transfer tax deposits for the first three quarters of 2026. Review the latest IRS guidance before relying on relief.
Updated excise-tax amounts
The 2026 Form 720 instructions also include inflation-adjusted amounts for specific excise taxes, including:
- $0.65 per qualifying arrow shaft.
- $5.30 for each domestic segment of taxable air transportation.
- $23.40 per person for the use of international air travel facilities on flights beginning or ending in the USA.
These changes are sector-specific. They will generally matter more to manufacturers, importers, airlines, transport businesses and specialist operators than to ordinary Amazon or Shopify sellers.
Form 720 deadlines and deposits
Form 720 is filed quarterly:
- January–March: 30 April.
- April–June: 31 July.
- July–September: 31 October.
- October–December: 31 January.
Weekend and legal-holiday rules can affect the practical filing date.
Where required, excise-tax deposits are generally made electronically and may be due semi-monthly. The Form 720 return then reports and reconciles the liability. Keep the following records for at least four years, as required by the instructions:
- Taxable transactions.
- Calculation schedules.
- Deposits and payment confirmations.
- Claims and credits.
- Supporting invoices and import documentation.
Do not assume that a low quarterly liability removes every filing requirement. Check the current Form 720 instructions for the relevant tax type, deposit method and exception.
Protect your business from Form 5472 penalties
Form 5472 is separate from Form 720. It applies to a reporting corporation, including:
- A 25% foreign-owned US corporation.
- A foreign corporation engaged in a US trade or business.
- A foreign-owned US disregarded entity in relevant circumstances.
The form reports certain transactions with foreign or domestic related parties. Common examples can include owner funding, distributions, loans, service payments, rent and other reportable transactions.
by Ariful | Aug 23, 2026 | Business
TITLE: How to Scale Your Business Globally in 90 Days: A Structured Expansion Sprint
Global expansion becomes far safer when you treat it as a structured operating project rather than a distant ambition. A disciplined, phased approach transforms the chaos of international growth into a manageable, measurable process.
This 90-day scale-up sprint offers a practical route from business assessment to a controlled international launch. You will review your financials, select a viable market, protect cash flow, build compliance processes, and systemise the recurring work your team handles every week. By following this blueprint, you mitigate risk and set the stage for sustainable, profitable growth.
A critical principle: do not try to enter five markets at once. The key to success is building one repeatable expansion model first, proving its viability, and then replicating it elsewhere.
Set One Commercial Outcome Before You Start
Begin your sprint by defining a single, measurable commercial outcome for the next 90 days. This primary goal will anchor your team’s focus and provide a clear benchmark for success. Examples of strong primary outcomes include:
- Generate 20% of new sales from one priority overseas market.
- Reach £25,000 in monthly recurring revenue from international customers.
- Reduce marketplace settlement and inventory reconciliation delays to fewer than seven days.
- Launch in one new country while maintaining your existing gross margin.
- Build enough cash visibility to fund expansion without disrupting payroll or supplier payments.
To support this primary goal, you must track three to five operating metrics that give you a real-time view of your progress and health. These metrics should cover the following areas:
- Revenue and gross margin by market.
- Customer acquisition cost and payback period.
- Average order value or monthly recurring revenue.
- Inventory days and stock cover.
- Cash runway.
- VAT, GST, and Sales Tax obligations.
- Reporting and filing completion rates.
Assign one owner to every metric. If nobody owns a specific number, it will not improve consistently. Accountability is the engine of operational discipline.
Days 1–15: Establish Your Financial and Operational Baseline
Measure the Business You Have Before Funding the Business You Want
Your first step is to collect accurate, comprehensive information from your bank accounts, payment providers, ecommerce platforms, accounting software, payroll records, and inventory systems. This data forms the foundation of your entire expansion strategy.
Your baseline assessment should answer these critical questions:
- Which products, services, or customer segments generate the strongest contribution margin?
- Which sales channels create the most profitable growth?
- How quickly do customers pay?
- How much cash is tied up in inventory?
- Which markets already produce demand?
- Which compliance tasks are late, manual, or unclear?
Next, build a simple 13-week cash-flow forecast. List expected cash receipts and payments by week. This forecast should include a comprehensive view of your cash movements:
- Customer receipts.
- Marketplace settlements.
- Subscription income.
- Supplier payments.
- Payroll and contractor costs.
- Marketing spend.
- Freight, duty, and fulfilment.
- Software subscriptions.
- VAT, GST, Sales Tax, and corporation tax payments.
Once you have this forecast, add a defined minimum cash buffer. This prevents you from treating every available pound as expansion capital and ensures you have a safety net for unexpected expenses or delays.
A reliable limited company accounting and compliance system can give you cleaner bookkeeping, VAT preparation, year-end accounts, and critical deadline visibility before you commit to significant expansion spending. This foundation of clean financials is non-negotiable.
Baseline checklist
- Reconcile every bank and payment account.
- Match marketplace settlements to orders, refunds, fees, and reserves.
- Review gross margin by product or service.
- Separate trading cash from tax liabilities.
- Identify overdue customer balances.
- Record inventory landed cost, not only supplier invoice value.
- Document current filing and reporting responsibilities.
Example: An Amazon Seller Finds Hidden Cash Leakage
An Amazon seller may see strong sales figures but weak cash generation because marketplace settlements are frequently reduced by fulfilment fees, storage charges, advertising costs, returns, refunds, and reserve balances.
An Amazon seller accountant in the UK should not simply record the net bank receipt. Instead, the process must reconcile the full settlement report to the underlying sales and costs to uncover any inefficiencies.
For an FBA business, Amazon FBA accounting in the UK should also connect inventory movements with purchases, fulfilment, returns, and cost of goods sold. This detailed view shows whether your growth is genuinely profitable or simply increasing the amount of cash trapped in unsold stock.
Days 16–30: Select One Market With Evidence
Choose the Market That Fits Your Economics and Operations
Do not select a market simply because it appears large. Choose it because your specific business can serve it profitably and compliantly. Fit is more important than size.
Score each potential market from one to five against a clear set of criteria. This disciplined scoring removes emotion from the decision-making process. Evaluate based on:
- Existing customer demand.
- Expected selling price.
- Shipping or service delivery cost.
- Local competition.
- Payment methods.
- Currency and foreign exchange exposure.
- Customer support requirements.
- Import, VAT, GST, or Sales Tax obligations.
- Availability of local fulfilment or business partners.
- Ease of returning goods or resolving disputes.
For physical goods, map the full route from source to customer. Understanding this flow is critical for pricing and logistics:
Supplier → freight provider → customs entry → warehouse → customer → returns location
For digital businesses, map the entire customer lifecycle to understand friction points:
Lead source → payment provider → contract → service delivery → customer support → renewal
Select one primary market and one backup market. This approach forces disciplined experimentation and reduces wasted setup costs compared to a scattershot approach.
Test demand before committing to infrastructure
Before investing heavily, run a small market test to validate your assumptions. This low-risk experiment can use various channels to gauge real interest:
- A localised landing page.
- Market-specific pricing.
- Search or social advertising.
- A marketplace listing.
- A partner or distributor conversation.
- A small group of existing customers.
Track qualified demand rather than clicks. A market is only promising when customers convert at an acceptable acquisition cost and remain profitable after you account for fulfilment, payment, support, and compliance costs.
Days 31–45: Protect Cash Flow During Expansion
Fund Growth Without Creating a Working-Capital Crisis
International growth often increases costs before it increases receipts. You may need to pay for stock, freight, customs, software, local registrations, advertising, and contractors several weeks before the corresponding revenue arrives. Managing this timing gap is the core of cash flow protection.
Set strict financial guardrails before launching. These boundaries will help you make quick, responsible decisions under pressure:
- Maximum launch budget.
- Minimum cash buffer.
- Maximum customer acquisition cost.
- Target gross margin.
- Maximum inventory commitment.
- Maximum acceptable payback period.
- Spend-reduction trigger if sales fall below plan.
Review your forecast every week without fail. Actively replace assumptions with actual performance data to keep your plan realistic and grounded.
For ecommerce, you must calculate your true contribution margin by accounting for all variable costs. This provides an accurate picture of profitability per unit:
- Product cost.
- Packaging.
- Freight and duty.
- Marketplace commissions.
- Payment processing.
- Fulfilment.
- Returns.
- Advertising.
- Customer support.
- Tax-related costs that cannot be recovered.
For SaaS and digital businesses, the contribution margin calculation differs but is equally critical for sustainability:
- Hosting and software infrastructure.
- Payment fees.
- Sales commissions.
- Customer onboarding.
- Support.
- Refunds.
- Contractors.
- Local taxes and compliance costs.
Example: A Shopify Business Funds a Controlled US Launch
A UK Shopify business may have strong recurring sales at home but insufficient cash to hire a US team immediately. Jumping in headfirst could be catastrophic for their cash position.
Instead, it can test the market using a US-focused campaign, transparent delivery terms, and a limited product range. The business should model currency conversion, payment fees, import costs, and other variables to build a comprehensive financial picture. This staged approach allows the company to learn, iterate, and scale in a financially responsible way.
by Ariful | Aug 23, 2026 | UAE Updates
TITLE: Tax Compliance Alert: Alcohol Excise, Widow Tax Fix, and Key August Deadlines
Australia’s tax compliance landscape is moving quickly this week. The ATO is increasing scrutiny of alcohol excise remission claims, Parliament has passed the so-called widow tax fix, and several important reporting obligations fall due on 28 August 2026.
Whether your business operates in Sydney, Melbourne, Brisbane, Perth, Canberra or Adelaide, use today to review your records, confirm your obligations and prepare before the next deadline arrives.
Alcohol manufacturers: strengthen your remission records now
The ATO has announced a targeted crackdown on misuse of the Alcohol Manufacturers Remission Scheme. The scheme provides eligible manufacturers with a 100% remission of excise duty, subject to an annual cap.
From 1 July 2026, the cap increased from $350,000 to $400,000 per financial year. The change applies to eligible alcoholic beverages entered for home consumption from that date. You can review the current requirements in the ATO’s remission scheme guidance.
The ATO is now focusing on arrangements that may improperly multiply access to the cap. Its compliance activity includes:
- Business aggregation involving related or connected entities.
- “Cap shopping” between entities to use separate or remaining caps.
- Shared premises, equipment or production facilities.
- Common directors, employees, distillers, brewers or other key personnel.
- Contract manufacturing structures where responsibility for production is unclear.
- Claims involving products that were diluted rather than genuinely brewed or distilled.
- Businesses claiming remission without satisfying the still ownership or manufacturing requirements.
The ATO has indicated that enhanced checks for new licence applications will begin from September 2026. Businesses new to the excise system can also expect greater scrutiny during their first two years of operation from October.
Complete this alcohol excise compliance check
If you manufacture alcohol in NSW, Victoria, Queensland, Western Australia, South Australia or another Australian jurisdiction, review the following:
-
Reconcile your remission claims to production records.
This will help you identify errors before the ATO requests supporting evidence.
-
Track the $400,000 cap throughout the financial year.
Once the cap is reached, stop applying the automatic remission and select “No” at Label F on later excise returns.
-
Document legal and economic independence.
Keep ownership charts, financing records, lease agreements, staff arrangements and equipment registers.
-
Review contract manufacturing agreements.
Clearly identify who manufactures the product, who holds the relevant licence and who is entitled to claim the remission.
-
Retain evidence of genuine manufacturing activity.
Production logs, fermentation or distillation records, invoices and stock movements may be important during an ATO review.
Strong documentation will help you support valid claims and reduce the risk of unpaid excise, penalties and disruption.
Widow tax fix: preserve the correct CGT and gearing records
The Treasury Laws Amendment (Tax Reform No. 2) Bill 2026 passed Parliament on 19 August 2026, addressing an unintended outcome affecting surviving spouses and people experiencing relationship breakdown.
The fix preserves existing negative gearing and capital gains tax entitlements where a person acquires an interest in an investment property because of:
- The death of a spouse.
- A transfer from a deceased estate.
- A change in ownership following relationship breakdown.
The issue arose because a transfer of a previously protected investment property interest could otherwise be treated as a new acquisition. That could have affected access to existing negative gearing treatment and capital gains tax concessions.
This is not an inheritance tax. Australia does not impose a general inheritance tax. The compliance issue is how the transfer is recorded and reported for income tax and CGT purposes.
Record every ownership change carefully
If your business, trust or personal tax affairs involve an investment property affected by death or relationship breakdown, do not rely only on the new policy announcement. Keep:
- The original purchase contract and settlement statement.
- Ownership and title records.
- Probate or estate documentation.
- Relationship breakdown or court documents, where relevant.
- Loan statements and interest schedules.
- Evidence supporting the property’s main residence or investment use.
- Records of capital improvements and other cost-base items.
You must still consider whether a CGT event occurred, how the main residence exemption applies and whether the property was used to produce rental income. The fix protects the intended tax treatment in qualifying circumstances, but accurate reporting remains essential.
Check the Australian Parliament bills and legislation register and final ATO guidance for commencement dates, transitional rules and any retrospective operation before amending a lodged return.
Bendel decision: review UPE and Division 7A arrangements
Following the High Court decision in Commissioner of Taxation v Bendel, the ATO has clarified that an unpaid present entitlement, or UPE, owed to a corporate beneficiary is not automatically a Division 7A loan.
In practical terms, where a private company becomes presently entitled to trust income and simply leaves that entitlement unpaid, the UPE itself does not automatically create a loan under Division 7A.
However, this does not remove all compliance risk. The ATO’s Division 7A and trusts guidance confirms that other rules may still apply, including:
- Subdivision EA, where a trust with an unpaid corporate entitlement provides a payment, loan or other benefit to a shareholder or associate.
- Section 100A arrangements involving reimbursement agreements.
- Actual loans, payments or financial accommodation by a private company.
- Existing arrangements that contain additional steps beyond a passive UPE.
The Division 7A benchmark interest rate for the 2026–27 income year is 8.77%. Where a complying Division 7A loan exists, use the correct benchmark rate when calculating interest and minimum yearly repayments.
Reconcile trust accounts before lodgment
For each corporate beneficiary, confirm:
- The amount of the present entitlement.
- Whether the entitlement remains passive or has been used to fund benefits.
- Whether Subdivision EA could apply.
- Whether any written loan agreement is required.
- Whether the 8.77% benchmark rate has been used correctly.
- Whether the trust resolutions and company accounts agree.
by Ariful | Aug 23, 2026 | US Updates
TITLE: IRS Updates Section 163(j) Business Interest Deduction: What International Ecommerce Sellers Need to Know for 2026
The IRS has updated its guidance on the US business interest deduction. The changes matter if your international business has a US LLC, C corporation, controlled foreign corporation, or US trade or business with interest costs.
This update is especially relevant to UK ecommerce sellers, Amazon FBA brands, cross-border digital businesses, and us importers of record managing US inventory, warehouses, or financing.
Check your 2026 interest deduction before filing
On 19 August 2026, the IRS published Fact Sheet FS-2026-14, updating its frequently asked questions on the section 163(j) business interest expense limitation.
The new fact sheet supersedes FS-2025-09, published on 23 December 2025. It reflects changes and clarifications introduced by the One, Big, Beautiful Bill Act.
Section 163(j) generally limits the amount of business interest expense you can deduct for a tax year. The maximum deduction is the total of:
- Your business interest income.
- 30% of adjusted taxable income (ATI).
- Floor plan financing interest expense.
Any business interest that you cannot deduct is carried forward to the next tax year. The carryforward may remain limited if section 163(j) continues to apply.
This is why accurate bookkeeping matters. Your tax calculation depends on correctly separating interest income, interest expense, depreciation, amortisation, depletion, and other ATI adjustments.
Confirm whether your business qualifies for the small business exemption
A business may generally be exempt from section 163(j) if it meets the gross receipts test and is not a tax shelter.
The base threshold is average annual gross receipts of $25 million or less over the previous three tax years. The inflation-adjusted thresholds are:
- 2024 tax year: $30 million.
- 2025 tax year: $31 million.
- 2026 tax year: $32 million.
Do not assess this threshold using only your US marketplace sales. You may need to consider the relevant gross receipts of related entities and controlled groups.
For example, a UK parent company, US corporation, and related Canadian corporation may require a wider review than the US entity’s Amazon settlement reports alone.
Keep your group structure, ownership records, and revenue calculations together. This will support the exemption analysis and reduce the risk of an incorrect federal return.
Recalculate ATI under the 2026 rules
The updated IRS FAQs highlight two important ATI changes.
Add back depreciation, amortisation, and depletion again
For tax years beginning after 31 December 2024, depreciation, amortisation, and depletion deductions are added back when calculating ATI.
This can increase ATI and therefore increase the 30% interest limitation. However, the effect depends on your full tax computation and the relevant deductions.
Your ecommerce bookkeeping should clearly identify:
- Warehouse and fulfilment equipment.
- Computer hardware and software costs.
- Capitalised development expenditure.
- Leasehold improvements.
- Depreciation and amortisation entries.
- Interest paid on loans, credit facilities, and shareholder funding.
Exclude certain CFC income inclusions
For tax years beginning after 31 December 2025, a US shareholder’s controlled foreign corporation income inclusions under sections 951(a), 951A(a), and 78 are excluded from ATI.
The associated deduction portions are also addressed by the new rule.
In practical terms, a US shareholder can no longer increase ATI by including these CFC income amounts. This may reduce the available section 163(j) limitation for some international structures.
If your US entity owns or is treated as a US shareholder of a foreign corporation, review the calculation before preparing the 2026 return. Do not rely on older assumptions that CFC inclusions automatically increase ATI.
Understand how the rules apply to foreign businesses
Section 163(j) is not limited to domestic US corporations.
The IRS confirms that the rules can apply to:
- Foreign corporations that are CFCs.
- Foreign corporations engaged in a US trade or business.
- Other foreign persons engaged in a US trade or business.
- CFCs that are partners in partnerships.
- CFC groups where the relevant group rules apply.
For a CFC, section 163(j) generally applies in a similar manner to a domestic C corporation. A CFC group election may allow a single limitation to be calculated for the group.
For a foreign corporation engaged in a US trade or business, proposed Treasury Regulation section 1.163(j)-8 coordinates the rules with income that is effectively connected with the US trade or business.
This can affect a UK company selling into the United States through:
- A US warehouse or fulfilment provider.
- A US branch or fixed business operation.
- A US entity that borrows to fund inventory.
- A US marketplace structure with related-party financing.
- A US subsidiary receiving funding from its UK parent.
Your structure and tax classification will determine the filing treatment. Maintain entity-level records rather than combining every country’s income and expenses into one spreadsheet.
Worked example: UK Amazon seller with a US entity
Assume a London-based ecommerce brand sells through Amazon US. It operates through a US corporation and uses fulfilment locations in Texas and California.
For the 2026 tax year, the US corporation has:
- Business interest expense: $50,000.
- Business interest income: $2,000.
- Adjusted taxable income before the 30% calculation: $100,000.
- Floor plan financing interest: $0.
The section 163(j) limitation is:
- Business interest income: $2,000.
- 30% of ATI: $30,000.
- Floor plan financing interest: $0.
- Maximum deductible business interest: $32,000.
The result is:
- Total interest expense: $50,000.
- Deductible interest: $32,000.
- Disallowed interest carried forward: $18,000.
This is an illustration only. The actual result could change after considering the gross receipts exemption, CFC rules, partnership rules, related entities, capitalisation rules, and the full ATI computation.
If the company also has relevant depreciation or amortisation deductions, those may be added back to ATI for a tax year beginning after 31 December 2024. That could increase the deduction limit.
However, if the structure involves CFC income inclusions for a tax year beginning after 31 December 2025, those inclusions may no longer increase ATI.
Separate federal interest rules from state sales tax
Section 163(j) concerns the federal deduction for business interest expense. It does not replace state sales tax compliance.
An Amazon or Shopify seller may still need to review sales tax obligations in states such as:
- New York.
- Texas.
- California.
Marketplace facilitator rules may mean Amazon calculates and collects sales tax on certain transactions. You may still need to register, file returns, report marketplace sales, or manage direct Shopify and WooCommerce transactions.
Your warehouse locations also remain important. Inventory stored in Texas or California may affect state compliance even where the federal interest calculation is handled separately.
This is why Amaz
