by Ariful | Sep 11, 2026 | USA Accounting
TITLE: New IRS Rules Could Reshape Foreign Tax Credits for International Seller Groups in 2026
The IRS and Treasury have proposed new rules that could change how international seller groups calculate US foreign tax credits for 2026 tax years.
The proposal affects the allocation and apportionment of deductions to foreign-source Section 951A category income, commonly associated with GILTI and now referred to as net CFC tested income. It also updates the calculation of deduction eligible income under Section 250.
The proposed regulations were published on 11 September 2026 as REG-117273-25, 91 FR 57832, document 2026-18645.
For many US corporations with foreign subsidiaries, the changes could increase the foreign tax credit limitation. However, they may also create US-source losses and affect future overall domestic loss recapture.
Check whether your US structure falls within the rules
The proposal is relevant if your group includes:
- A US domestic C corporation that owns or is a US shareholder of a controlled foreign corporation (CFC).
- A US corporation used by UK, EU, Canadian, or Australian founders to operate or sell into the US.
- An international ecommerce, SaaS, agency, or digital business with a US corporation and a foreign subsidiary.
- A domestic corporation claiming the Section 250 deduction for foreign-derived deduction eligible income (FDDEI).
- A US seller group reporting Section 951A income and claiming foreign tax credits.
The rules are not automatically relevant to every foreign-owned US business. For example, a foreign-owned US LLC taxed as a disregarded entity or partnership may not be the taxpayer directly affected by the Section 951A rules. The analysis depends on the entity’s US tax classification, ownership structure, CFC interests, and filing position.
Review the US entity structure first. This will help you identify whether the proposal affects your 2026 calculations.
Understand the three Section 904(b)(5) deduction categories
The One Big Beautiful Bill Act added new Section 904(b)(5). The provision creates special rules for allocating deductions to foreign-source Section 951A category income when calculating the foreign tax credit limitation.
The proposed regulations describe three broad categories.
1. Allocate Section 250 and certain state or local tax deductions
Section 904(b)(5)(A) requires the following deductions to be allocated and apportioned to foreign-source Section 951A category income:
- The Section 250(a)(1)(B) deduction relating to net CFC tested income.
- A Section 164(a)(3) deduction for state and local income taxes imposed on amounts included in Section 250(a)(1)(B).
- Related amounts attributable to the Section 951A income and associated Section 78 gross-up, where applicable.
This means the Section 250 deduction remains part of the calculation for the Section 951A foreign tax credit basket.
2. Do not allocate interest or R&E to the Section 951A basket
Section 904(b)(5)(B) provides that no interest expense or research and experimental expenditure may be allocated or apportioned to foreign-source Section 951A category income.
This is a significant change for many US corporations.
Under the proposed framework, interest expense that would previously have reduced foreign-source Section 951A income through asset-based allocation is removed from that basket. The result can be a higher amount of foreign-source income for the Section 904 limitation calculation.
The treatment of R&E requires care. Existing Section 1.861-17 rules generally do not allocate R&E expenditures to Section 951A income. Therefore, R&E is excluded from the Section 951A basket, but it is not necessarily reallocated to US-source income if it would not have been allocated to the basket under the existing rules.
Separate interest, R&E, and other operating expenses in your workpapers. Combining them could produce an incorrect foreign tax credit calculation.
3. Allocate other deductions only when directly allocable
Section 904(b)(5)(C) permits another deduction to reduce foreign-source Section 951A income only when it is directly allocable to that income.
The proposed regulations interpret “directly allocable” more narrowly than “properly allocable” under the general Section 861 rules.
A deduction is not directly allocable if it is the type of deduction that may be apportioned using:
- The relative value of assets.
- The amount of US gross income.
- Modified gross income or similar indirect allocation factors.
The proposed regulations specifically identify several deductions that are not directly allocable, including:
- Stewardship expenses.
- Legal fees and accounting fees.
- Damages awards, prejudgment interest, and settlement payments.
- Supportive expenses.
- Overhead, general and administrative, and supervisory expenses.
These costs may still be deductible. However, they may no longer reduce foreign-source Section 951A income for Section 904 limitation purposes.
The proposal identifies examples of deductions that may be directly allocable, including:
- Section 986(c) foreign currency losses on distributions of previously taxed earnings and profits (PTEP) assigned to the Section 951A category.
- Net operating loss deductions allocated and apportioned to foreign-source Section 951A category income under the proposed rules.
Trace every material deduction to its underlying activity. This creates a stronger compliance file and helps support the treatment used in the tax calculation.
Model the potential foreign tax credit benefit
The foreign tax credit limitation generally restricts credits to the US tax attributable to net foreign-source taxable income in the relevant category.
The proposed rules can increase that limitation because fewer deductions reduce the Section 951A basket.
Example: US corporation with a foreign subsidiary
Assume a US corporation is owned by international sellers based in the UK, Canada, and Australia. The US corporation owns a foreign subsidiary that generates tested income and pays foreign income tax.
The US corporation also has:
- Interest expense on a US borrowing facility.
- Central overhead and general administrative costs.
- Accounting and legal fees.
- Foreign tax credits connected with the foreign subsidiary’s income.
Under the proposed Section 904(b)(5) rules:
- Interest expense cannot be allocated to foreign-source Section 951A income.
- General administrative and overhead expenses are not directly allocable.
- Legal and accounting fees are not directly allocable.
- The Section 951A income basket is therefore not reduced by those deductions for the Section 904 limitation calculation.
- The US corporation may have a higher foreign-source Section 951A income amount and a higher limitation for claiming foreign tax credits.
The benefit depends on the complete tax profile. It is not an automatic refund or credit increase. The corporation must still calculate the relevant foreign income, foreign taxes, deductions, Section 250 amounts, losses, and limitations correctly.
Watch for US-source losses and domestic loss recapture
The proposal does more than increase the Section 951A basket.
Deductions that would have reduced foreign-source Section 951A income under the normal allocation rules, but are excluded by Section 904(b)(5), are reallocated to US-source income.
That reallocation can:
- Create or increase a US-source loss for the year.
- Reduce the US tax attributable to US-source income.
- Affect the overall foreign tax credit limitation when US-source income is reduced or turned into a loss.
- Trigger or increase an overall domestic loss (ODL) that must be recaptured in later years.
An overall domestic loss arises when a US-source loss exceeds US-source income and a portion of that loss offsets foreign-source income. The reallocated deductions may increase an ODL balance. That balance must generally be recaptured in future years, which can reduce the foreign tax credit limitation in those years.
This means the immediate benefit of a higher Section 951A basket could be offset by future recapture. Groups with existing ODL balances should model both the current-year benefit and the future recapture effect.
Track ODL balances alongside the Section 951A limitation. The two interact, and a change to one can affect the other.
Plan for the 2026 tax year now
The proposed regulations are not yet final. However, they signal the direction of travel for Section 904(b)(5) and the Section 951A foreign tax credit basket.
Practical steps for international seller groups include:
- Confirm your entity classification and CFC status. Determine whether your US corporation is a US shareholder of one or more CFCs and whether it reports Section 951A income.
- Map your deductions by category. Identify Section 250 amounts, state and local taxes, interest expense, R&E, and other deductions that may be directly or indirectly allocable.
- Isolate interest and R&E. These should not be allocated to the Section 951A basket under the proposal.
- Test “directly allocable” for each material deduction. Do not assume that general overhead, administrative, legal, or accounting costs can reduce Section 951A income.
- Model the foreign tax credit limitation. Compare the limitation under the proposed rules with the current calculation.
- Review ODL balances and recapture. Consider how reallocated deductions could create or increase US-source losses and future recapture.
- Document your position. Keep a clear workpaper trail that supports the allocation and apportionment treatment used.
Speak to your US tax adviser before filing. The rules are proposed, and the final regulations may differ. However, early modelling can help you plan for 2026 and avoid surprises.
Key takeaways
- The proposed regulations under REG-117273-25, 91 FR 57832, document 2026-18645, address the allocation and apportionment of deductions to foreign-source Section 951A category income.
- New Section 904(b)(5) creates three categories: deductions that must be allocated to the Section 951A basket, deductions that cannot be allocated (interest and R&E), and deductions that may be allocated only if directly allocable.
- The Section 250 deduction relating to net CFC tested income remains part of the Section 951A basket calculation.
- Interest expense and R&E cannot be allocated or apportioned to foreign-source Section 951A category income.
- General overhead, administrative, legal, accounting, and similar expenses are not directly allocable and may no longer reduce the Section 951A basket.
- A higher Section 951A basket can increase the foreign tax credit limitation, but reallocated deductions may create US-source losses and increase overall domestic loss recapture in future years.
- International seller groups with US corporations and foreign subsidiaries should model the impact now and review their entity structure, deduction mapping, and ODL balances.
by Ariful | Sep 10, 2026 | US Updates
TITLE: Pennsylvania Local Sales Tax Moves to Destination Sourcing Under Act 21 of 2026
What is changing in Pennsylvania?
Pennsylvania is changing how local sales tax applies to taxable sales delivered to Philadelphia and Allegheny County, home of Pittsburgh.
Under Act 21 of 2026, local sales tax is moving from origin sourcing to destination sourcing. The Pennsylvania Department of Revenue will begin enforcing the new approach on 1 October 2026.
For international sellers, the practical rule is simple:
If you must collect Pennsylvania’s 6% sales tax, you must apply the correct Philadelphia or Allegheny County local tax based on the customer’s delivery address.
Pennsylvania has a 6% statewide sales tax. Only two local jurisdictions add a local sales tax:
- Philadelphia: 2% local tax, creating an 8% combined rate.
- Allegheny County: 1% local tax, creating a 7% combined rate.
- All other Pennsylvania locations: 6% state tax only.
Before Act 21, local tax was generally sourced according to the seller’s location.
That meant:
- A Philadelphia-based seller charged the 2% Philadelphia local tax on taxable Pennsylvania sales, including deliveries outside Philadelphia.
- A seller based outside Philadelphia did not generally charge Philadelphia’s 2% local tax on taxable goods delivered into Philadelphia.
- An Allegheny County seller charged the 1% local tax based on the origin rules then in place.
From 1 October 2026, local tax follows the delivery address instead.
A taxable delivery to Philadelphia is generally subject to 8%. A taxable delivery to Allegheny County is generally subject to 7%. A taxable delivery to Reading or another Pennsylvania location outside those jurisdictions remains subject to the 6% state rate alone.
The change does not alter which products or services are taxable. It changes where the local tax applies.
Effective date and enforcement date are different
Act 21 became law in July 2026. Its legal effective date is retroactive to tax years beginning after 31 December 2025, meaning the rule technically applies from 1 January 2026.
However, the Pennsylvania Department of Revenue has provided a soft landing. It will not begin enforcing the destination-sourcing rules until 1 October 2026, giving businesses time to update systems and processes.
This creates two dates you must track:
- 1 January 2026: The retroactive legal effective period begins.
- 1 October 2026: The Department of Revenue begins enforcement.
Do not treat the enforcement delay as a cancellation of the earlier legal period. Review your 2026 transactions and keep clear records of how you assessed and handled the January-to-September period. If your historic calculations appear incorrect, document the issue and obtain current instructions from the Pennsylvania Department of Revenue before correcting filings or remitting additional tax.
Who is affected by the Pennsylvania rule?
The change affects:
- Businesses located in Pennsylvania.
- Sellers in Philadelphia or Allegheny County shipping to other Pennsylvania addresses.
- Sellers elsewhere in Pennsylvania shipping into Philadelphia or Allegheny County.
- Interstate and remote sellers with Pennsylvania sales tax obligations.
- International sellers with Pennsylvania economic nexus.
- Sellers using Amazon, Shopify, eBay, Etsy, WooCommerce or other sales channels.
Pennsylvania’s economic nexus threshold is $100,000 in gross Pennsylvania sales in a calendar year. Once an out-of-state business has economic presence, it generally must register, collect and remit Pennsylvania sales tax on taxable transactions.
For a UK, US, EU, Canadian or Australian seller, the key question is not whether the business is located near Philadelphia. The key questions are:
- Do you have Pennsylvania sales tax nexus?
- Is the sale taxable?
- Where is the product or service delivered?
- Who is responsible for collecting and remitting the tax?
Why this matters to international ecommerce sellers
A UK-based seller shipping from an overseas warehouse into Philadelphia has no Pennsylvania origin location to use for local sourcing. Once the seller has Pennsylvania collection obligations, the customer’s delivery address becomes the essential tax data point.
This is particularly important for sellers that:
- Operate a Shopify or WooCommerce store.
- Sell through Amazon, eBay or Etsy.
- Use third-party fulfilment.
- Ship from the UK, Europe, Canada or Australia.
- Sell through a US entity while managing accounting from the UK.
- Combine marketplace sales with direct-to-consumer sales.
Do not assume that a marketplace facilitator solves every Pennsylvania obligation. Platforms may collect tax on facilitated transactions, but you must still understand:
- Which transactions the marketplace collected.
- Whether the correct local rate was applied.
- How marketplace sales are treated in your Pennsylvania nexus calculation.
- Whether your direct website sales are being calculated correctly.
- Whether your reports support your Pennsylvania filings.
Direct-to-consumer sales through your own Shopify or WooCommerce website remain your operational responsibility unless another approved collection arrangement applies.
This is where structured Shopify accounting UK, Amazon FBA accounting UK and ecommerce bookkeeping UK processes can help. Your accounting workflow should connect order data, delivery addresses, marketplace reports, tax collected and filing records.
Worked example: Philadelphia, Pittsburgh and Reading
Assume your business sells a taxable product for $100 and is required to collect Pennsylvania sales tax.
| Delivery address |
State tax |
Local tax |
Total tax |
Customer total |
| Philadelphia |
6% = $6 |
2% = $2 |
$8 |
$108 |
| Pittsburgh, Allegheny County |
6% = $6 |
1% = $1 |
$7 |
$107 |
| Reading |
6% = $6 |
None |
$6 |
$106 |
The seller’s location does not determine the local rate under the new rule. The delivery address does.
For a Shopify store, the tax engine should identify whether the delivery address is in Philadelphia, Allegheny County or another part of Pennsylvania. The same logic should apply when your order data is exported for reconciliation and filing.
Complete this compliance checklist before 1 October
Use the following checklist to prepare your business.
1. Confirm your Pennsylvania nexus position
Review your Pennsylvania gross sales for the current and prior calendar year. Include sales from relevant channels and confirm whether you have crossed the $100,000 economic nexus threshold.
If you have nexus, confirm that your registration and collection process is active. Doing this early helps you update tax logic, run test orders and verify that the correct Philadelphia or Allegheny County rate is being applied before enforcement begins.
by Ariful | Sep 10, 2026 | Business
TITLE: Australian Tax and Payroll Checklist: Key Actions for Businesses After 1 July 2026
Australian Tax and Payroll Checklist: Key Actions After 1 July 2026
Australia’s tax and payroll environment has changed significantly since 1 July 2026. Cross-border software payments, Payday Super, Single Touch Payroll, GST reporting and trust tax rules all require attention.
Use this checklist to identify the actions your business should take today.
1. Review offshore software payments before 2 October
The ATO finalised Taxation Ruling TR 2026/2 on 4 September 2026. It explains when payments under software distribution and intermediation arrangements may be treated as royalties for Australian tax purposes.
If a payment is a royalty, Australian royalty withholding tax may apply when you pay an offshore provider. This can affect:
- SaaS businesses paying overseas software owners.
- Digital agencies using international platforms.
- Software resellers and distributors.
- App developers and marketplace operators.
- E-commerce businesses paying offshore technology or platform providers.
- Businesses making payments for software licences, embedded intellectual property or know-how.
The ATO’s view focuses on the substance of the arrangement. A contract calling a party a “distributor” or describing payments as “royalty-free” will not necessarily determine the tax treatment.
You should examine whether your payments relate to:
- The right to use copyright or other intellectual property.
- The use of software rights.
- Access to know-how.
- Software embedded in physical products.
- Ancillary support connected to intellectual property rights.
The relevant point for withholding tax is generally the date you make the payment. This means you should review current payment processes, not only new contracts.
Assess your risk under PCG 2026/D4
The ATO also released draft Practical Compliance Guideline PCG 2026/D4. It proposes a risk-based framework for software-related royalty payments to non-residents.
Public consultation remains open until 2 October 2026. The draft guideline includes lower-risk zones and indicators of higher-risk arrangements. It also seeks feedback on the risk criteria, residual risk calculations and practical examples.
Action checklist:
- List all payments made to offshore software and platform providers.
- Separate ordinary access fees from payments that provide rights to use intellectual property.
- Review contracts, invoices and payment descriptions.
- Check whether a tax treaty changes the withholding outcome.
- Keep evidence supporting your treatment.
- Escalate uncertain arrangements before making further payments.
Read the ATO’s software royalties ruling and draft guidance and note the consultation deadline.
2. Treat missed June quarter super payments as overdue
The final quarterly Superannuation Guarantee payment for the June 2026 quarter was due to reach employees’ funds by 28 July 2026.
Where an employer missed that date, the shortfall is overdue. Any required Superannuation Guarantee Charge statement and payment were generally due by 28 August 2026.
Do not assume that making a late contribution removes the problem. The late payment offset is no longer available. Employers must address the shortfall and any applicable SGC obligations under the rules applying to the June quarter.
Payday Super myths to avoid
Payday Super applies to paydays from 1 July 2026. Contributions must reach the employee’s fund within 7 business days of payday, unless a specific exception applies.
The ATO has highlighted several common misunderstandings:
-
Myth: Seven days means calendar days.
The standard period is seven business days. Weekends and national public holidays are excluded.
-
Myth: Sending the payment is enough.
The contribution must reach the fund with sufficient information for allocation. The date you initiate the payment is not always the date the fund receives it.
-
Myth: The old quarterly system still applies to new paydays.
Paydays from 1 July 2026 are subject to the Payday Super framework.
-
Myth: The Small Business Superannuation Clearing House is still available.
The Small Business Superannuation Clearing House closed from 1 July 2026. You need another SuperStream-compliant payment solution.
-
Myth: The ATO will immediately penalise every transition error.
The ATO has stated that it is prioritising support during the first transition year. That does not remove the obligation to calculate, report and pay super correctly.
Check your payroll software, payment provider and fund data now. A failed payment can create a timing problem even when the original instruction was submitted on time.
The ATO’s Payday Super guidance provides the current employer requirements.
3. Complete STP finalisation for closely held payees by 30 September
Small employers with 19 or fewer employees may have different STP finalisation dates depending on their workforce.
For the 2025–26 income year:
- Arm’s-length employees generally required finalisation by 14 July 2026.
- Closely held payees generally require finalisation by 30 September 2026 where the business has a mix of arm’s-length and closely held payees.
- Small employers with only closely held payees may have a different deadline linked to the payee’s tax return due date.
If your business has both regular employees and closely held payees, review the 30 September deadline now. Closely held payees may include directors, owners or family members paid by a private company.
From 1 July 2026, Payday Super also expands the information required through STP. Each pay run must report qualifying earnings and superannuation liability amounts, alongside wages and PAYG withholding.
Complete these checks:
- Confirm every pay event has been lodged.
- Review employee and closely held payee classifications.
- Reconcile year-to-date wages and PAYG withholding.
- Confirm qualifying earnings are mapped correctly.
- Check year-to-date super liability amounts.
- Finalise closely held payees by the correct deadline.
The ATO explains the requirements for STP end-of-year finalisation and STP reporting under Payday Super.
4. Keep defensible valuations for Division 296
Division 296 commenced on 1 July 2026 for individuals with total super balances above the $3 million threshold.
The ATO has identified market valuations and audit evidence as key risk areas. This is particularly important for SMSF trustees holding:
- Unlisted company shares.
- Units in private trusts.
by Ariful | Sep 9, 2026 | US Updates
TITLE: IRS Opens 2027 CAP Applications: What International Ecommerce Sellers Need to Know
The IRS has opened applications for the 2027 Compliance Assurance Process (CAP). Eligible corporations must apply by 30 October 2026.
This update matters to larger international sellers, especially foreign-owned US C corporations operating through Amazon FBA, Shopify, digital services, or cross-border group structures.
The CAP can help eligible businesses resolve significant federal tax issues with the IRS before filing their return. However, it is not available to every international seller.
Apply by 30 October 2026 for earlier tax certainty
The IRS announced the application window in IR-2026-107, published from Washington, DC, on 8 September 2026.
Key dates include:
- Application period: 1 September to 30 October 2026
- IRS acceptance notifications: February 2027
- CAP year: 2027
- Applicant type: Eligible corporations and qualifying existing CAP partnerships
The IRS launched CAP in 2005. It uses transparent, cooperative interaction between large corporate taxpayers and the IRS to identify and resolve tax issues before a return is filed.
This approach can provide greater certainty. It can also reduce the risk of significant issues emerging for the first time during a later IRS examination.
Understand how CAP works before you apply
CAP is based on real-time issue resolution. You provide the IRS with relevant information about your tax positions, transactions, and financial reporting. The IRS then works with you to identify and resolve material issues before the federal tax return is submitted.
For an international seller, this may include questions involving:
- Intercompany charges between a US company and its overseas parent
- Transfer pricing for goods, services, technology, or intellectual property
- Cross-border financing and management fees
- Revenue recognition across Amazon, Shopify, and direct sales channels
- Foreign currency accounting
- Related-party transactions
- Differences between audited accounts and the US tax return
CAP does not mean the IRS automatically accepts every position. It also does not remove the need for complete records, accurate calculations, or timely filings.
You must continue to meet the programme’s information, disclosure, and cooperation requirements. Accepted taxpayers must also sign and follow a CAP Memorandum of Understanding.
Check whether your foreign-owned US corporation qualifies
A privately held foreign-owned US C corporation may qualify. The IRS eligibility requirements include all of the following:
- Assets of at least $10 million.
- No investigation or litigation with a government agency that would limit the IRS’s access to current corporate tax records.
- The applicant must either be:
- A US publicly traded corporation required to file SEC Forms 10-K, 10-Q, and 8-K; or
- A privately held C corporation, including a foreign-owned corporation, that agrees to provide the required financial statements.
For a private foreign-owned US C corporation, the financial reporting requirements are particularly important. You must be prepared to provide:
- Annual audited financial statements
- Unaudited quarterly financial statements
- Statements prepared under US GAAP, IFRS, or another method approved by the IRS
- Financial statements specific to the applying corporation
- An unqualified opinion from an independent auditor
- A reconciliation of audited net income or loss to Schedule M-3, line 4(a), covering worldwide consolidated net income or loss
Parent-company accounts alone are not enough. The financial statements must relate specifically to the US corporation applying to CAP.
Review the IRS CAP eligibility and suitability criteria before deciding whether your structure is ready.
See how CAP could help a cross-border ecommerce group
Consider a UK-based ecommerce group with a US C corporation. The US company owns more than $10 million in inventory, fulfilment assets, receivables, and other US business assets.
The company sells through Amazon FBA and Shopify. It also pays intercompany fees to its UK parent for technology, management, marketing, and product support. Its annual accounts are audited under IFRS.
In this example, the company may be able to apply for CAP if it satisfies all other IRS requirements.
During the CAP process, the company could work with the IRS to address questions such as:
- Whether intercompany service charges are properly documented
- Whether transfer pricing calculations support the reported results
- How inventory and fulfilment costs should be allocated
- How related-party transactions reconcile to the corporation’s US tax return
- Whether the tax treatment of cross-border payments is consistent with the company’s records
Resolving these issues before filing can improve reporting consistency. It can also help the business avoid discovering a material federal tax problem after the return has been submitted.
Acceptance is not guaranteed. The IRS will assess both eligibility and suitability.
Know when CAP does not apply
Many overseas ecommerce sellers operate in the United States through a foreign-owned, single-member LLC that is treated as a disregarded entity for federal income tax purposes.
CAP generally does not apply to that structure because CAP is designed primarily for eligible corporations, including qualifying C corporations.
A foreign-owned disregarded LLC may instead have separate reporting responsibilities, including:
- Form 5472 reporting for certain reportable transactions
- A pro forma Form 1120 filing
- Proper tracking of contributions, distributions, and related-party payments
- US sales tax registrations and filings where state nexus exists
- Marketplace and fulfilment reporting
- Records supporting cross-border transactions
The exact filing position depends on the entity’s ownership, tax classification, activities, and transactions. Do not assume that an LLC has no US filing requirement simply because it is disregarded for federal income tax purposes.
An LLC that has elected to be taxed as a C corporation may need to assess CAP eligibility differently. Confirm the entity classification before preparing an application.
Separate federal CAP from sales tax and VAT compliance
CAP relates to federal corporate income tax administration. It does not replace state-level sales tax compliance.
An international seller may still need to manage:
- State sales tax registrations
- Economic nexus thresholds
- Marketplace facilitator rules
- Sales tax return filings
- Exemption certificates
- Amazon FBA inventory movements
- Shopify transaction data
- VAT obligations in the UK or Europe
- GST obligations in other markets
This distinction is important. Joining CAP would not make an ecommerce business compliant across every US state or overseas jurisdiction.
You need a complete compliance process that connects bookkeeping, tax calculations, sales tax, VAT, and year-end accounts.
Prepare your 2027 CAP application now
Do not wait until October to begin assembling the required documentation. Start reviewing your corporate structure, financial statements, and intercompany agreements well in advance of the 30 October 2026 deadline. Early preparation gives you time to address any gaps in your records and ensures you can provide the IRS with the detailed information CAP demands.
by Ariful | Sep 9, 2026 | Marketplace Ecommerce
TITLE: Key VAT and Customs Changes: Deadlines Every Business Must Track This Week
This week brings important changes and proposals for UK businesses, international sellers and digital commerce operators.
HMRC has changed how some non-UK VAT group members claim UK VAT refunds. The UK is considering wider marketplace VAT liability. The EU has approved a major customs reform that will increase responsibilities for platforms selling imported goods.
You should also prepare for new EU small-parcel requirements and the temporary 0% VAT rate for qualifying domestic electricity supplies in Great Britain.
Act now: the five deadlines and changes to track
Use this short list to prioritise your compliance work:
- 31 December 2026: Deadline for transitional UK VAT refund claims covering the prescribed year from 1 July 2025 to 30 June 2026.
- 31 August 2027: Final date to ask HMRC to reconsider certain previously refused UK VAT group refund claims.
- 1 November 2026: EU Product Identifiers become mandatory for relevant distance sales of imported goods.
- From 1 November 2026: An EU-wide small-parcel handling fee is expected, although the Commission has not yet fixed the amount or detailed application rules.
- 1 October 2026 to 31 March 2027: Qualifying domestic electricity supplies in Great Britain move temporarily to 0% VAT.
These measures affect VAT reporting, cash flow, product data, customs declarations and marketplace reconciliation. Do not wait for your next year-end review. Start checking your transaction and logistics data now.
Submit separate claims for non-UK VAT group members
HMRC’s Revenue and Customs Brief 8 (2026) restores the position that applied before 1 January 2021.
Each eligible non-UK business in a VAT group must now submit its own claim for UK VAT it incurred. The UK VAT group’s representative member cannot submit a combined claim unless it incurred the VAT itself.
This matters if your international group has:
- A non-UK company that incurs UK travel, professional or operating costs.
- A VAT group structure in another country.
- A representative member that previously submitted refund claims for other group entities.
- Historical claims rejected because the representative member did not submit them.
Use the transitional rule before 31 December 2026
For VAT incurred during the prescribed year from 1 July 2025 to 30 June 2026, HMRC will accept a claim from either:
- The individual group member that incurred the VAT; or
- The representative member of the VAT group.
The claim must be submitted by 31 December 2026. Missing this deadline can result in the refund being lost.
Request a review of historic refusals
HMRC will review certain claims for VAT incurred from 1 January 2021 where the claim was refused because the representative member did not submit it. The VAT must not have been included in a later claim by the representative member.
Request a review by emailing newcastle.oru@hmrc.gov.uk with the subject line:
Reconsideration of a previously refused VAT group claim
Include the business name, ORU reference, claim number, claim period, claim value, decision date, full group member details and confirmation that the VAT was not claimed later.
This process is separate from ordinary VAT return filing. Organise the invoices, claim schedules and refusal letters now so you can support the request.
Monitor the UK marketplace VAT proposal
HMRC and HM Treasury closed their consultation on 18 August 2026. The proposal would extend marketplace VAT liability to certain domestic B2C sales by UK businesses where goods are located in the UK at the point of sale.
The proposal covers online marketplaces and may include takeaway and delivered food platforms. It does not currently apply to B2B sales.
The lead option is a £90,000 Minimum Platform Threshold per platform. If adopted, a marketplace could become responsible for accounting for VAT on qualifying sales once a UK business exceeds that level on the individual platform.
However, this is not law yet. A further technical consultation and legislation would be required. Current rules have not changed.
Prepare for the possible cash-flow effect
Under the proposal, the marketplace would collect VAT from the customer and report it on its own VAT return. The seller’s supply to the marketplace would generally be treated as a deemed zero-rated supply under the proposed design.
You could therefore see:
- Less VAT cash held by your business before filing.
- Changes to marketplace settlement reports.
- New reconciliation requirements between gross sales, VAT collected, fees and payouts.
- Different treatment for sales through your own website, physical premises and other platforms.
- Complications for sellers using the Flat Rate Scheme.
- Additional uncertainty for second-hand goods sold under the margin scheme.
Do not change your VAT treatment based on the consultation alone. Instead, model the impact using your current sales by platform. Keep separate records for marketplace sales, direct sales, B2B supplies and second-hand goods.
Reliable VAT return services UK businesses can use should reconcile each channel before the return is prepared. This helps you identify discrepancies before they become filing errors or cash-flow surprises.
Prepare for the EU’s customs overhaul
On 3 September 2026, the Council approved its position on the recast Union Customs Code. The Council’s official announcement describes the reform as the most comprehensive EU customs overhaul in decades.
The final legislative process is still relevant. The European Parliament is expected to approve the text later in September, followed by signature and publication in the Official Journal.
The reform will make non-EU ecommerce platforms and distance-sale operators responsible for customs formalities and duty payments when they are treated as the importer for distance sales. The final EU consumer should no longer carry the main customs burden in these transactions.
The reform also creates:
- A new EU Customs Authority based in Lille from 2027.
- An EU Customs Data Hub.
- Stronger data-sharing and risk controls.
- New penalties for non-compliant ecommerce operators.
- Potential fines of up to 6% of annual import value in serious cases.
- Market access restrictions and removal of customs privileges.
Ecommerce platforms should begin improving product, seller and shipment data. UK retailers dispatching goods from Great Britain should review product classification, origin and basket composition before sending goods into the EU.
Review EU small-parcel costs and product data
The European Commission’s offi cial guidance confirms that from 1 November 2026, EU Product Identifiers will become mandatory for relevant distance sales of imported goods. This applies to low-value consignments, and sellers must ensure their product data meets the new standards to avoid delays or refusals at the border.
Additionally, the Commission has signalled an EU-wide small-parcel handling fee expected to apply from the same date. While the precise amount and detailed application rules have not yet been fixed, logistics and compliance teams should prepare for additional costs per parcel and adjust their pricing models accordingly.
Review your current shipment data, seller information, and product classifications now. Gaps in data quality will lead to higher costs and slower clearance once the rules are fully in force.
