How to Calculate Taxes for Importing in UK | Updated 2020

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How to Calculate Taxes and Duties for Importing Into UK

 

E-commerce businesses and other individuals shipping goods into the UK should be clear about their taxes and duties liabilities. Although the thought of this tends to drive a lot of people crazy, calculating the taxes and duties due on your shipments should not be much of a challenge when you understand how things work.

We’ll go down into the basics of this in this guide. But before then, let’s first have a brief look at what taxes and duties are, in the first place.

 

UK Import Duty & Tax

Goods purchased and imported into the UK from outside the EU are subjected to tax and duty payable to the UK Customs Department. Movement of products within the EU are exempted from VAT, although VAT will still be levied on the shipping and carriage costs.

If your goods are liable to VAT and duty charges, they’ll only be released to you upon payment of the due fees. So, while you’re calculating what it will cost to ship your goods from China, you need to factor in both the duty and VAT.

  • Understanding the VAT

You may need to pay VAT on the cost of the goods as well as the amount it costs to ship to the UK. So, the VAT is not just calculated on the goods alone, it will, however, be on the total of what it cost you to bring the goods into the UK

  • UK Import Duty

Different products have different duty percentages.

This means that you may have to pay slightly different import duties on various products. The UK government has an online tariff calculator on its website. Either you use this to calculate your import duty, or you ask your freight agent to help with it.

How much you pay as import duty will depend on the class of goods you’re shipping.

This is where the HS Codes come into play. Along with a detailed description of your shipment, the goods must also be allocated to the right tariff heading, as errors may attract costly fines and penalties.

  • HS Codes

HS Codes, also known as the Customs Harmonized Tariff System Codes, are used in determining what percentage of the cost of the goods will be due as import duty. This must be error-free and noted correctly. The code classification will help you understand the tariff class your products belong to. This will be helpful in calculating your VAT and import duty accurately.

 

How to calculate VAT and Duty

There are two main methods to calculate duty and VAT.

You can use the CIF or the FOB, depending on how your package is being shipped into the UK. Below, we’ve laid out two examples to help you understand how to calculate your duty and VAT using either method.

 

CIF – Cost, Insurance, and Freight

The CIF considers the cost of both shipping and insurance and is the most prevalent quote. However, it’s still the method with the higher value when both are compared.

Let’s consider the following scenario for instance;

  • Value of goods: £7,500
  • Cost of shipping and insurance: £,600
  • Subtotal costs (1): £8,100

The duty will be calculated on the subtotal costs (1).

So, let’s assume a duty of 3.5% is levied on the goods;

Then, 3.5% of £8,100 equals £283.5

Therefore, Duty + Subtotal (1) equals subtotal (2)

  • Subtotal (2) equals £8,383.5
  • The VAT will be charged on subtotal 2
  • Assume there will be a VAT of 20%
  • 20% of £8,383.5 equals £1,676.7

Total landing cost including duty and VAT equals £9,960.2

 

FOB – Freight on Board

The FOB quote is the second method used in calculating duty and taxes, and it does not consider freight costs and insurance. Let’s assume the scenario below to understand this;

  • Value of goods: £7,500
  • Cost of shipping and insurance: £,600
  • Subtotal costs (1): £7,500 (does not factor in shipping and insurance)

The duty will be calculated on the subtotal costs (1).

So, let’s assume a duty of 3.5% is levied on the goods;

Then, 3.5% of £7,500 equals £262.5

Therefore, Duty + Subtotal (1) equals subtotal (2)

  • Subtotal (2) equals £7,762.5
  • The VAT will be charged on subtotal 2
  • Assuming there will be a VAT of 20%
  • 20% of £7,762.5 equals £1,552.5

Total landing cost including duty and VAT equals £9,815

 

Paying your VAT and Import Duty

The freight clearance company handling your shipment will usually notify you of your tax and duty liabilities. The process is not that complex. You may get an invoice, so all you’ll need to do is pay, and everything is done.

It’s however, essential to have a clearance agent in place so they can work with the UK Customs on clearing your shipment as soon as it arrives. You can also get copies of the invoice from your overseas supplier to notify your clearance agent beforehand.

There are a few things you have to keep in mind, however;

  • Although you’ll have to pay your VAT if you’re registered for it, you can still claim it back with the Certificate C79 obtainable every month from the HMRC
  • Sample products of negligible may enjoy duty and VAT relief
  • Products with a commercial value above £15 will be subject to VAT
  • Products with a commercial value above £135 will be liable for duty
  • Products from certain countries under the Generalised System of Preferences (GSP), may pay lower or no duty at all.

 

Bottom Line

It’s always better to be sure of where you stand as far as VAT and duty payments are concerned. Using the correct HS Codes will help you understand what you’re to pay.

If there is anything you don’t seem to understand, you can find answers from your freight clearance agent or visit the HMRC website.

 

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