Customs Import Duty
What are Import Taxes?
Depending on the products' nature and the source, you can be required to pay a variety of taxes and import duty when importing goods into Great Britain (England, Scotland, and Wales) and Northern Ireland from outside the EU and the UK.
Customs duty, excise duty, and import VAT are the three primary types of import taxes that can be imposed in the UK. You might have to pay one tax, or in certain cases, more than one, depending on the type of imports you make.
- Customs duty applies to both individuals who import products for private use and businesses that import goods for commercial use.
- In addition to customs duty, excise duty is charged on alcohol and tobacco products.
- Import Value-Added Tax (VAT) is payable on imports at the rate that would apply to the product if it were purchased in the UK.
What is Customs Duty
Charges imposed on commodities as they travel across international boundaries are known as customs duty. Local governments impose import duties on imported products with the intention of protecting local businesses, industries, and economies. Customs charges may vary depending on the imported products and the country of origin.
The amount of import duty is determined by the "commodity code" for your import products and may differ significantly based on the type of product. Governments categorise goods using codes everywhere in the world. Operations at customs are streamlined as a result. Additionally, they ascertain whether goods are subject to import taxes and levies, such as licencing, VAT, and customs duties.
When importing products, they are subject to customs duty. In most cases, the duty is assessed based on the import value of the items, and this is known as ad valorem duty. Ad valorem customs duty is normally charged on some goods and is a charge based on the cost, insurance, and freight (CIF) value.
Goods may be entered into one of the customs special procedures (CSPs), or they may be eligible for relief owing to their unique import characteristics. There are various ways to avoid paying customs duties (e.g., there are allowances for travellers and certain personal imports).
Commodity Codes
In the UK tariff, each category of commodities is identified with a numerical number that is used for import duty purposes. The tariff also verifies the standard rate of customs duty that is applied to the import products, as well as any potential variations in this rate (due to preference or a suspension of duties, for instance) and the licencing requirements (some goods, such as explosives, food, pharmaceuticals, and weapons, are subject to additional regulation).
Rate of Customs Duty
If a consignment of import products, rather than a single item, is valued at more than £135 upon import from any location outside the United Kingdom, customs import duty will be applicable for businesses located in Great Britain. When items are brought into Northern Ireland from outside the EU and the UK, businesses must pay customs import duty.
Customs taxes are levied by HM Revenue and Customs on imports worth more than GBP £135, and these taxes normally vary from 0% to 25% of the imported product value.
Gifts valued between GBP £135 and GBP £630 incur a customs duty rate of 2.5% or less, while gifts exceeding the GBP £630 threshold are subject to higher rates, determined by their specific commodity codes.
How are Customs Duty and Import VAT Calculated?
When you import goods into the UK, you must work out the value of your import products to use when working out customs import duty and import VAT. This value is known as the customs value.
Customs duty is calculated as a percentage of the goods’ total value, which includes both the price paid for the goods themselves and any freight and insurance costs incurred.
Import VAT of 20% is applied to the combined figure of the cost of the goods, freight and insurance costs, and the customs duty incurred.
A simple example of how to work out the costs for both UK duty and import VAT:
- Goods value: £4000 (purchased from outside the UK)
- Cost of Freight (shipping) and Insurance: £200
- Sub Total 1: £4200 (amount duty is calculated on)
- Duty on Sub Total 1 @ 5%: £210
- Sub Total 2: £4410
- VAT @ 20% on Sub Total 2: £882
- The total Landed Cost (Imported Cost), including duty and VAT, is £5292
What is Landed Cost?
A product's "landed cost" is the total cost incurred during its international transit from the seller’s factory to the buyer's door. The cost of the products, shipping expenses, insurance premiums, customs charges, and any other expenses incurred are all included.
In today's competitive global business environment, comprehending and effectively handling landing costs is essential for operating a profitable international business. It acts as a financial business tool for decision-making, assisting businesses in choosing the best pricing tactics, streamlining their supply chain processes, and eventually increasing their profit margins. Businesses can find areas where cost savings are achievable and negotiate advantageous terms with suppliers and carriers, such as Incoterms 2020.
Having a good business grasp of landed costs is not only financially necessary but also a strategic advantage that can mean the difference between good profit margins and negative profit margins. It can be challenging to calculate the cost of some elements (such as import VAT, customs duties, and charges). We can help your business reduce the landed cost of your products. Talk to us today.