When goods arrive in the UK, HMRC applies customs duty and Import VAT. These taxes are a significant financial consideration for importers. Calculating the overall landed cost of imported goods in advance is key to effective product pricing and cash flow management.
The bigger picture: What is UK Customs Clearance? Everything You Need to Know
Customs duty calculations are based on on three essential elements: precise commodity codes, comprehensive goods valuation, and strategic trade agreements.
A 10-digit number that classifies your product and sets the duty percentage. To determine the exact duty rate, precise classification is crucial.
Calculated as the product price plus shipping and insurance costs (the "customs value").
UK trade agreements can significantly impact duty rates. Some countries qualify for reduced or zero-rate duties. Understanding these agreements can lead to substantial savings.
In addition to customs duty, you will also need to pay Import VAT on the total value of your goods.
This is calculated on:
The standard rate is currently 20%. If you are a VAT-registered business, you can usually reclaim this Import VAT on your next VAT return.
When paying customs duties there are two ways to balance immediate transaction costs with long-term cash flow management.
Typically managed with the help of a customs broker.
N.B. you may see references to the CHIEF system however this was shut down in June 2024.
Enables consolidated monthly payment of customs charges, offering cash flow advantages. The responsible party is determined by the Incoterms® agreed with your seller.
The border value includes the cost of your goods plus any extra costs (like transport and insurance) incurred up to the port of entry. Convert all values to GBP using the HMRC exchange rates for the month.
The way these costs are included depends on the shipping terms (INCOTERMS) outlined in your commercial invoice.
| Values in different currencies | Example HMRC exchange rates | Conversion Calculation |
|---|---|---|
| Goods Cost (EXW): £10,000 | - | - |
| Freight (to port): €1,200 | 1.1361 (EUR to GBP) | €1,200 ÷ 1.1361 = £1,056.25 |
| Insurance: $12 | 1.245 (USD to GBP) | $12 ÷ 1.245 = £9.64 |
To calculate the customs duty, you may have more than one item. You should split the freight and insurance costs proportionally between two items.
| Item 1 | Item 2 | |
|---|---|---|
| Value | £6,000 | £4,000 |
| Freight | £1,056.25 x (6,000/10,000) = £633.75 | £1,056.25 × (4,000/10,000) = £422.50 |
| Insurance | £9.64 × (6,000/10,000) = £5.78 | £9.64 × (4,000/10,000) = £3.86 |
| Total | £6,000 + £633.75 + £5.78 = £6,639.53 | £4,000 + £422.50 + £3.86 = £4,426.36 |
| Duty Rate (%) | 0.04 (4%) | 0.07 (7%) |
| Duty Rate (£) | £6,639.53 × 0.04 = £265.58 | £4,426.36 × 0.07 = £309.85 |
Most goods will incur the standard VAT rate of 20%. VAT is calculated on the total value of the goods including duty plus any additional charges.
| Full Load Adjustment | Add £550 per container. |
| Part Load Adjustment | Add £90 per 1,000 kg plus a flat rate of £80 (£170 minimum) |
| Airfreight | Add £0.40 per chargeable kg (minimum of £100) |
Using the previous example, if you have a full container, calculate the VAT as follows:
| Total Border Value (CIF) | £11,065.89 |
| Duty | £575.43 |
| VAT Adjustment (Full Load) | £550 |
| Total Value for VAT | £11,065.89 + £575.43 + £550 = £12,191.32 |
| VAT (20%) | £12,191.32 × 0.20 = £2,438.26 |
Take advantage of a free consultation. Find out at no cost what a Livingston Customs Clearance Specialist can do for you.
We specialise in:
Avoid delays, reduce costs and ensure full compliance. Even the biggest businesses overlook savings opportunities.
Contact us at europe@livingstonintl.com or call us at