How To Calculate VAT & Duty | Imported Goods To UK | [2022]

How to calculate VAT & Duty on goods that have been imported from outside the EU

We receive a lot of questions about what is VAT payable on, when is it applied, how is it applied and to what products is VAT applied.

In this article, we’ll explore how to calculate VAT and Duty on goods imported to the UK from outside the European Union.

We will bring you comprehensive definitions and examples to help develop your understanding and detail all the relevant information necessary.

 

Import VAT overview

 

When importing goods and products from outside of the EU it can be very easy to forget about all the related charges and expenses resulting from VAT such as, Customs Duty (also known as import duty/tax) and excise duty.

Though, it should be noted Excise Duty is specifically applied to alcohol and tobacco. When importing these goods from outside of the EU, you’ll need to include excise duty as an additional cost.

Fortunately, these costs can all be calculated by any reputable freight forwarder or freight management company. Working with a reputable experienced partner offers a degree of security as they will securely organise payment for your shipments without any unnecessary delays.

Organising payment for VAT and customs duty is an essential part of the process when importing goods and cannot be legally avoided by anyone, entity or country.

If these charges were missed, then collecting the goods may prove challenging. Any goods without payment would likely be held by customs where you’ll incur additional holding fees or they can be destroyed or returned to the sender at considerable cost.

 

Customs Import Duty

 

Customs duty rates are dependent upon two things: the type of goods being shipped, and the country of origin they are being imported from. Should you need to confirm the correct rate of duty the correct commodity code can be found through HMRC.

Reputable freight forwarders and shipping agents will be able to advise you on the correct commodity/ HS code, while handling the process, otherwise you can find information and guidance by contacting HMRC helpline.

Acquiring the correct commodity code will allow you to look up and calculate the cost of customs duty.

Should you need any information about what a HS code is, why its important and how to apply one, we have a handy guide here.

Note that it is calculated as a percentage of the total value of the goods, packaging, shipping, and insurance.

 

What Exactly Is Customs Duty?

Customs duty, also called import tax or import duty, is a charge that is applied to goods that have been sent from outside of the EU, when the value of the goods is over £135.00. This is the total value of the goods, shipping, packaging, and any relevant insurances.

 

Common questions asked by our customers include:

  • Do I pay duties on socks from China
  • How to work out how much vat to pay on an item
  • How is beer duty calculated
  • Do freight charges have VAT
  • How is import duty calculated

Let’s help answer all of those questions in more detail…


Do I pay duties on socks from China?

In short, yes, you do as China is outside of the EU.

 

How to work out how much vat to pay on an item

We have illustrated a handy example below for you.

 

How is beer duty calculated

Beers –  (2.8% to 7.5% ABV): 19.08 pence per litre for each % of alcohol (e.g. one litre of 5% ABV beer = 19.08 pence x 5 = 95.40 pence beer duty.

 

Do freight charges have VAT

Whether you’re an ecommerce or brick and mortar retailer you are required to pay VAT on shipping charges. There are several compelling reasons for this.

Tax evasion would be easier if retailers were not required to charge VAT on delivery charges. You may, for example, reduce the price of the items on your invoice and instead charge extra for delivery charges.

That means you’ll pay the tax authorities less VAT, and you’ll be able to keep the shipping costs without paying sales tax. As a result, shipping charges are not VAT-free.

In the next section, find out how to calculate vat duty imported goods UK.

 

How do you actually calculate customs import duty in the UK?

 

Imagine you need to import a shipment of office desks from a well-known Chinese supplier to the UK. The goods cost £24,000, and the shipping and insurance costs £15,000.

The value of the shipment is worth £39,000 which is far more than £135.00.

The goods cannot be considered gifts, so you’ll need to pay a specific import duty rate, specific to the country.

To find out how much you’ll need to pay, you’ll need to check the commodity code for office desks, and apply the import duty rate for that code – 2.0% in our example.

Tax will be due on the cost of the goods and shipping, which in this case is £39,000 (£24,000 + £15,000).

2.0% of £39,000 is £780 (39,000 x 0.045). Therefore, the goods, shipping, and import duty, you’ll pay £39,780 in total.

As it’s from outside the EU, you’ll also need to pay VAT on this amount which is 20.0%.

 

What is VAT and why is it crucial when importing goods?

 

Put simply it’s the total cost of importing goods to the UK, including the cost of the goods, shipping and packaging costs, duty payable and the cost of insurance.

However, it is only payable on goods valued at over £15.00. Crucially, one thing to note is that if you are importing goods that are gifts worth under £39.00 you will not be charged VAT.

These rules, however, do not apply to alcohol, tobacco and fragrance products, regardless of the value, they are still subject to VAT as mentioned in the Excise Duty.

 

What is the VAT rate charged on shipping costs?

 

There are three separate VAT rates now in effect which are: 0%, 5%, and 20%.

Select the VAT rate that applies to the sort of items you’re shipping when shipping them. Check the HM Revenue & Customs website or consult a reputable professional for a complete list of which things fall into which VAT category. Your freight forwarder should be able to advise accordingly.

 

How to calculate VAT?

 

Despite some exceptions, the usual VAT rates are 0%, 5% and 20.0% in the UK. There are some products that come at a reduced rate, and some that are completely exempt, find out here. We advise that you bear in mind that VAT is calculated as a percentage of the total value of the goods and everything related such as insurance and shipping etc.

What should you do if you are charged too much or decide to return your goods?

You can ask for a refund for the VAT or Customs Duty paid if you think you have been charged too much or if you decide to return the item(s). This will require you to fill in one of two forms:

–            form BOR 286 if the goods were delivered by Royal Mail or Parcelforce

–            form C285 if the goods were delivered by a courier or freight company

 

 

 

What is Excise Duty and how does it relate to VAT and Duty?

 

Similar to the VAT and Customs Duty as discussed above except this is only applied to alcohol and tobacco.

If you are importing these from outside of the EU, from countries like the US you will need to include the additional cost of excise duty.

It should be noted that there are two other instances where your goods can be seized, if you are transporting spirits over 35 centilitres without a UK duty stamp, or cigarettes/ hand-rolling tobacco without UK health warnings or fiscal marks.

 

How to calculate Excise Duty

 

The cost of excise duty can be complicated to calculate as it is entirely dependent upon the type of goods being shipped. You can find the full list of rates for each product on the UK government website, whilst the most common examples include:

  • Beers – (2.8% to 7.5% ABV): 19.08 pence per litre for each % of alcohol (e.g. One litre of 5% ABV beer = 19.08 pence x 5 = 95.40 pence beer duty
  • Spirits – £28.74 per litre of pure alcohol (e.g. One litre of 40% ABV vodka = 40% of £28.74 = £11.50 spirit duty)
  • Cigarettes – 16.5% of the retail price, plus £4.34 on a packet of 20
  • Cigars – £2.71 on a 10g cigar

 

What is VAT and why is it crucial when importing goods?

 

Put simply it’s the total cost of importing goods to the UK, including the cost of the goods, shipping and packaging costs, duty payable and the cost of insurance.

However, it is only payable on goods valued at over £15.00. Crucially, one thing to note is that if you are importing goods that are gifts worth under £39.00 you will not be charged VAT.

These rules, however, do not apply to alcohol, tobacco and fragrance products, regardless of the value, they are still subject to VAT as mentioned in the Excise Duty.

 

What will happen if you do not pay the required VAT or Duty?

 

As previously discussed, if you do not pay VAT or Duty it may result in you paying significantly more in additional holding charges or losing out on the goods altogether, so it is advisable to pay the correct charges upfront.

One thing that can be done to help, is by using a shipping agent or reputable freight forwarder when importing, they will be able to assist you in calculating and paying the correct VAT and Duty charges.

This will save you time and the hassle of doing it yourself, resource as well as knowing that the procedure is being undertaken correctly by professionals.