How to calculate import duty and VAT UK

When you are buying goods from abroad, the cost of the goods is more than what is on your commercial invoice. Depending on your INCOTERM, the freight, inland costs, insurance, customs clearance, and how much you calculate for import duty and VAT, all need to be considered in addition to the value of your goods.

With so many expenses to consider, you might have wondered “How do I calculate customs taxes in the UK?”.

In this step-by-step guide, you will learn exactly how to calculate duty and VAT in the UK.

Find the border value of your goods in GBP

The value used for calculating duty and VAT is the cost of the goods upon arrival at the border. This includes all the export haulage, export clearance, and insurance fees, in addition to the base cost of your goods.

To give you an example, imagine that you have purchased your goods EXW (Ex-Works), and accumulated the following costs:

EXW value of the goods: EUR 15,000.00.

Marine insurance: GBP 10.00.

Inland haulage and ocean freight: USD 17,000.00.

To calculate your import duty, these all need to be converted into GBP.

The conversion rates that must be used are given by HMRC every month. You can find them on their website, here.

For November 2021, the rates of exchange (ROE) for calculating VAT and duty are as follows:

EUR: 1.1861.

USD: 1.3815.

We now divide your values by these ROEs to convert them into GBP.

Value EUR 15,000.00 / 1.1861 = GBP 12,646.49.

Freight USD 17,000.00 / 1.3815 = GBP 12,305.47.

Total cost and freight (C&F) = GBP 24,951.96.

Add the value for insurance, GBP 10.00, and we have a complete border value for calculating duty and VAT: GBP 24,961.96.

How do I calculate customs duty?

Before you can calculate your import VAT, you must calculate the amount of duty that you need to pay. This is because you will use the value for duty in your calculation for VAT.

Your consignment might only have one commodity, in which case you can use the entire border value in your calculation of duty.

However, we will use 2 commodities in this example so that you can see how other values, like freight and insurance, are prorated when there are multiple items.

Cost of item 1: GBP 5,500.00.

Cost of item 2: GBP 7,146.49.

Find the prorate for each item

The freight and insurance are prorated against each item to give the value for calculating duty. To find the rates of the split, you will need to find the % that each item takes up for the whole shipment. This is based on value, and not any other quantity (such as weight or volume).

Item 1: GBP 5,500.00 / GBP 12,646.49 = 43.49%.

Item 2: GBP 7,146.49 / GBP 12,646.49 = 56.51%.

We must then apply these splits to the freight and insurance:

Apply the prorate to each additional charge

Freight:

GBP 12,305.47 x 43.49% = GBP 5,351.65 for item 1.

GBP 12,305.47 x 56.51% = GBP 6,953.82 for item 2.

Insurance:

GBP 10.00 x 43.49% = GBP 4.35 for item 1.

GBP 10.00 x 56.51% = GBP 5.65 for item 2.

You now have the values for calculating import duty for each item

Item 1 GBP 5,500.00 + GBP 5,351.65 + GBP 4.35 = GBP 10,856.00.

Item 2 GBP 7,146.49 + GBP 6,953.82 + GBP 5.65 = GBP 14,105.46.

Each item has a rate for import duty for the month. You can find it in the tariff, here.

For this example, we will use the rates of 2% for item 1 and 8% for item 2 when calculating import duty:

Item 1 GBP 10,856.00 x 2% = GBP 217.12 import duty.

Item 2 GBP 14,105.46 x 8% = GBP 1,128.44 import duty.

Total duty: GBP 1,345.56.

Now that you have ascertained your import duty, you have all the values you need for calculating import VAT.

Calculating import VAT in the UK

For most commodities, the import VAT in the UK is 20%. However, there are certain types of goods that are 0% or 5%.

Some commodities, such as books and clothing, are 20% but also have special conditions which allow them to be imported at 0%. For example, clothing is 0% VAT when it is for children, and books are 0% VAT when they are educational.

Assuming that your commodities aren’t 0%, you will calculate import VAT using the same values as before, along with the duty and a value for VAT adjustment. The VAT adjustment represents the charges after the border, such as customs clearance, terminal handling, and haulage.

(Check you INCOTERM to see if these costs are already included in your commercial invoice.)

The values for VAT adjustment are set as standard for all imports:

Less than container / trailer load: flat GBP 80.00 + GBP 90.00 per 1,000kgs (minimum GBP 170.00).

Airfreight GBP 0.40 per chargeable kilogram, with a minimum rate of GBP 100.00.

Using the above values for an ocean import, we would calculate the import VAT as follows:

Border value: GBP 24,961.96.

Import duty: GBP 1,345.56.

VAT adjustment: GBP 550.00.

Value for calculating import VAT: GBP 26,857.52.

GBP 26,857.52 x 20% = GBP 5,371.50 import VAT.

Now you have calculated duty and VAT for your shipment.

If you need more help with calculating duty and VAT, please get in touch for more information.