A Complete Guide to Business License Requirements for Online Sellers in the UK and USA
- If you’re planning on selling products online in the United Kingdom, you don’t need to obtain a business license.
- At the same time, as a UK online seller, you are required to register with HM Revenue & Customs. This process allows the government to ensure that you’re paying all the necessary taxes and that your products and business operating procedures meet all requirements.
- In the US, online sellers are usually required to obtain a business licence. However, platforms like Amazon and eBay won’t ask you for a license when you register.
- US-based sellers may be required to obtain other licenses and permits in addition to a general business license, but the rules differ by state.
With each passing year, the e-commerce sector grows larger and larger, with the percentage of online sales constantly increasing. It is believed that e-commerce sales currently account for over half of all retail sales in the United Kingdom. Therefore, establishing an online store is an excellent idea for people who are looking to create a new business and those who already own a brick-and-mortar store. However, setting up an online shop requires a lot of preparation, and the first step is getting a proper license.
Do you want to know whether you need a license to sell products online in different countries? In this article, we will tell you all the rules for online retail licenses in the US and UK so you can feel safe and confident when starting your new company.
What Is a Business License?
A business license is essentially a permit from the government that allows you to operate your business. The type of business license you’ll need depends on the country or even the state where you work, but they all serve the same purpose – they confirm that you’ve received official local government approval to run your business in a specific jurisdiction.
A business license is usually required for online selling since it is an important aspect of demonstrating your company’s legitimacy and legality. However, acquiring this document isn’t as easy as simply filling out a form. There are a few other matters you’ll need to take care of. In addition, as we’ve already mentioned, the requirements concerning business licenses can vary depending on the country. In the next sections, we will discuss the particularities of business licenses in the UK and USA.
Online Business License Requirements in the UK
Most online businesses in the UK are allowed to trade without a business license. However, you must make sure to properly register with HM Revenue & Customs. This is the first mandatory step in creating your online shop, which should be done within three months after the establishment of your business. This is necessary because the government wants to ensure that you’re paying the correct amount of tax and National Insurance and to ascertain that your buyers’ personal information is protected and your goods and services meet all quality criteria.
Although you do not need a license to sell general products online in the UK, you still have to follow a set of rules. One of these rules is that you need to indicate what your customers need to do to place an order and indicate the total cost of delivery on your website.
However, there are a number of additional requirements you need to take into account. To find out more, you can consult the government’s Online and Distance Selling page.
License Requirements for Selling Restricted Goods in the UK
While most general goods can be sold without a permit, if you are planning to sell restricted products like alcohol, you’ll be required to acquire several licenses:
To get this license, you will need to go through training to receive a BIIAB Level 2 Award for Personal License Holders from a legitimate provider and then apply for a personal license online on a government website. The training takes only up to one day and costs approximately £100. The application for a personal license, on the other hand, can last three weeks and costs £37.
After getting the personal license, you’ll need to apply for a premises license. You can acquire this license only from your local authority or council. It can be attached to any commercial property, such as a warehouse or a shop floor. Keep in mind that you are unlikely to get a premises license for selling from your house since it is considered a domestic dwelling. A small building on your property that is distinct from your house, on the other hand, may be granted a license, given that you will have planning permission that enables it to function as commercial premises. The cost of this license depends on the value of your business premises and will be levied annually.
Another thing you need to keep in mind is that selling alcohol to anyone under the age of 18 is illegal. Although verifying the age of your customers over the internet is nearly impossible, you will be required to put adequate verification measures in place to check the person’s age.
License Requirements for Selling Goods Online From the UK To Other Countries
It can be pretty intimidating to open your online commerce business to an international audience. However, it is estimated that US buyers spend around £12.5 billion on UK products and services online each year, meaning that making your goods available to foreigners could help your small business increase sales and profit margins.
While selling to an international audience can significantly increase your revenue, you may experience some difficulties in the process. Before shipping your goods, you must ensure they have all the necessary documentation. In addition, when your products arrive in the United States or other countries, they will be liable for both customs duty and sales taxes. You can utilise the UK Trade Commission database to calculate the duty rates you’ll need to pay. You can also get in touch with customs agents at the destinations where your goods are expected to arrive to get more information regarding import rules and taxes.
When selling to the United States, keep in mind that the country’s taxation system is pretty perplexing. Although the US does not have a VAT, there are many states that have their own sales taxes that apply to products sold by companies from other states and countries. To get more accurate information on the sales tax in different states, visit the US government’s page on exporting goods to the United States.
Based on the sector to which your products are related, you may need a specific license to export them from the UK to the EU. You’ll also be required to fill in a proforma invoice to charge VAT on the sale. Don’t forget to include the invoice and all other necessary documents when shipping the goods. Make sure to always keep copies of commercial invoices and customs documents even after your customers receive their orders.
Where Can You Sell Your Products Online in the UK?
- Not on the High Street
Online Business License Requirements in the USA
In a nutshell, the answer to whether a business license is necessary for selling products online in the US is a definitive yes.
A business license is required for online selling, and it is an important step in establishing your company as legitimate and legal. However, acquiring a general business license will probably be the least of your problems. There are also several requirements for online selling that you’ll have to meet before launching your e-commerce business. In the next section, we will take a closer look at those requirements and explain common types of business licenses and permits.
Business license (general license)
A business license, also known as a “general license” or “business operating license,” allows you to operate a company in a specific area, usually your town, state, or county.
Generally, all businesses, whether online or offline, will require a business license to operate. However, if you are a physical retailer who already owns an existing brick-and-mortar store and a has license for selling products there, you won’t need an additional online business license. The only thing that matters here is the duration of the business license that allows you to sell your products and registers you to pay all the taxes that you as a business owner are responsible for as well.
The mechanism of applying for a business license varies among different jurisdictions and states, and so do the fees for obtaining one (although they are usually relatively low). Keep in mind that business licenses aren’t issued forever, and you will need to renew them every few years.
Sales tax license or seller’s permit
Most US states require you to acquire a seller’s permit if you sell products that are taxed, regardless of whether your business is run from a physical store or solely online. The “seller’s permit” is known by many names in different states. For example, it is often called a sales tax license, but the purpose of this document is always the same – it enables you to collect and remit tax from the sale.
Sometimes, this document will also allow sellers to buy certain goods from suppliers without having to pay sales tax. To do this, you’ll need to obtain a “resale certificate”, which confirms that the products you’re purchasing will be sold wholesale or retailed through your own store.
Usually, you won’t have to pay any fees to acquire this permit.
In general, any state where you have a “nexus” requires you to obtain a seller’s permit. Originally, this used to refer only to states in which a business had a physical presence, but the rules and terms have been rapidly changing. According to recent US Supreme Court decisions and law changes, many states now consider what’s known as an “economic nexus” when determining whether or not you need to have a permit and submit tax documentation in a certain state. In many states, this economic nexus does not come into force until you sell over $100,000 worth of products or services in the state or carry out more than 200 transactions.
Once again, these requirements vary by state, so you’ll have to check with your local authority to see if you need a seller’s permit. Alaska, Delaware, Montana, New Hampshire, and Oregon, for instance, do not collect state taxes at all. Furthermore, if you physically operate in several states — including housing inventory — you may be forced to acquire multiple seller’s permits to be able to conduct business in each of the states.
You can also benefit from “temporary seller’s permits”, but only in some states such as California and Idaho. If you are looking for a permit that allows you to sell online temporarily, this is exactly what you need.
Tax ID Number
There is one more document you’ll need to get before applying for a seller’s permit – a tax ID number. In some states, you will be allowed to use your social security number instead of a tax ID number if you are a sole proprietor. In others, state officials will ask you to provide your EIN (federal employer identification number). If you don’t know what an EIN is and where you can get it, don’t worry, we will elaborate more on this matter in the following section.
Keep in mind that state and federal tax identification numbers are not the same thing. However, in situations where you’re required to provide one of these numbers, you’ll also need to give the other one as well. You’ll find out whether you need an EIN to operate an online business when you go through the process of registering with your state to collect taxes.
These numbers effectively serve as a means for the government to keep an eye on your business, taxes, and all your employees.
Federal employer identification number
The federal employer identification number (EIN) is crucial for any business. It is similar to a social security number for your company. The EIN defines you as a business owner and makes it possible for you to comply with tax and other regulations. If you intend to register and operate as a business entity rather than having a sole proprietorship, having EIN is not optional – it is a requirement you need to comply with. However, if you are registered as a sole proprietor, you can use your social security number instead.
The EIN will also allow you to open a business bank account. At first glance, this might seem unimportant, but eventually, you’ll need to deposit your earnings into a distinct business account since it’s crucial to keep your business and personal assets separate.
You can acquire an EIN from the IRS online. If you plan to recruit some employees, you’ll definitely need an EIN to be able to withhold tax from them.
“Doing business as” license
The majority of companies register their business name at the same time as they register their company with the state. But in fact, not all business enterprises have to create and register a separate business name. For example, owners of sole proprietorships and general partnerships are required to register a name. In those cases, the business’ name is set to the owner’s legal name by default.
But if you don’t want to conduct business under your own name or under the name you registered with your state, a DBA license is a perfect option for you. This license will allow you to trade under a different name. You’ll have to approach the Secretary of State’s office to acquire this license. The process of getting DBA and fees for this document differ in each state, and some states don’t charge any fees at all. If you operate a business under a different name, you’ll also likely need a DBA license to execute some transactions, such as opening a business bank account.
However, you will have to double-check with your local authorities to learn about the restrictions around DBA licenses in your state, especially if you’ve previously operated under another name and would like to amend it now.
Home occupation permit
If you run your business from home, as many online sellers do, you might be required to get a home occupation permit. This license is not uncommon among e-commerce business owners, and it comes in handy for vendors who ship orders from their homes. If you want to hire some employees, you will likely require a home occupation permit as well.
The home occupation permit can also help you to avoid breaching restrictions if your business carries out services such as commercial sign installation or interior decoration or if you have a lot of foot traffic from shipping companies or from customers.
Please be advised that regulations and requirements concerning this license can vary depending on the area you operate your business in.
Professional and industry licenses
These types of licenses are also known as occupational licenses. In some states, occupational licenses are designed for people working in certain fields such as accounting or real estate. These professionals may be required to get a specific state license for their work. Online merchants that sell alcohol or tobacco may be required to get specialised industry licenses as well.
Statewide general business licenses
A general business license or a business operation license is necessary to run a business in a specific state. These documents are regarded as typical business licenses.
But some types of business entities are required to obtain specific state business licenses. The same goes for brick-and-mortar stores or online retail stores – these types of businesses usually aren’t required to get a general business license.
Federal business license
If you plan on selling your products to entities that are overseen by the government, you’ll need a federal business license. You’ll also have to charge federal tax on these sales.
Are you required to get a business license to sell on Amazon?
While the US government generally requires sellers to have a business license, Amazon won’t request it when you register a seller account.
In fact, a business license is typically not necessary to create an account on any of the following marketplaces:
If you are looking for an agency that will help you manage and grow your business and develop an effective Amazon strategy for you, NUOPTIMA is at your service. Sign up for a free discovery call with our experts, or leave your email so we can get in touch.
How Can I Find Out What Business License I Need to Sell Online
The best solution is to contact your local authority for information about the types of permits necessary to sell online in your jurisdiction. Some jurisdictions may require you to obtain licenses and permits that are not on this list and are unique to your location. You should obtain relevant information at the federal, state, county, and local levels.
The licenses you will be required to get may be determined by the types of goods you offer as well. For example, if you plan on selling pyrotechnics, you will probably need a different license than if you were selling clothes.
At first, it may seem like it’s very difficult to determine what kind of licenses you need to sell online. A lot of people worry about starting an online business because the process seems very confusing, overwhelming, and complex, but this is only true when you are selling restricted products or exporting your goods to other countries. But you can easily avoid problems with the government if you check the requirement with local authorities, find out which licenses you need, and make sure to comply with all regulations, restrictions, and requirements. This will guarantee that you won’t accidentally end up breaking the law.
Talk to an Amazon expert
We work with 100+ businesses. Book a slot now to talk to one of our experts.