How to Calculate UK Duty and VAT
One of the most common questions we get is “How are customs charges calculated in the UK?”
Find out how to calculate import duty and VAT in the UK in this step-by-step guide.
First, find the border value of your goods in GBP
The border value means the cost of your goods, plus any additional costs (such as transport or insurance) that are incurred until the port of entry. Depending on your INCOTERMthese costs may be included in the cost on your commercial invoice.
In following example, we’ll use an EXW (Ex-Works) invoice value to demonstrate how to find the border value when there are multiple currencies involved:
Take the following values:
- EXW value of the goods: GBP 10,000.00
- Freight from supplier to port: EUR 1200.00
- Insurance policy: USD 12.00
To calculate import duty and VAT in the UK, you need these to be in GBP.
We convert them using the HMRC rate of exchange for the month from their site. 2023’s rates of exchange can be found here, and you can replace the year in the URL for more options.
For this month (May 2023), the rates of exchange for EUR and USD are as follows:
- EUR 1.1361
- USD 1.245
These are the amount of each currency that we would get for every 1 GBP, so we must divide our values to get the rate in GBP.
- Freight EUR 1200 / 1.1361 = GBP 1056.25.
- Insurance USD 12 / 1.245 = GBP 9.64.
Now we have all of the values that we need to calculate import duty:
- Value: GBP 10,000.
- Freight: GBP 1056.25.
- Insurance: GBP 9.64.
- Total: 11,065.89.
Calculating customs duty
In a large majority of cases, the declaration to customs will only have one commodity. The following example will use 2 to show how the reaction of the freight and insurance values over multiple items:
- Item 1: GBP 6000.
- Item 2: GBP 4000.
The freight and insurance will then be proportionally allocated to each item:
- Item 1 Freight = GBP 1056.25*(6000/10000) = GBP 633.75.
- Item 2 Freight = GBP 1056.25*(4000/10000) = GBP 422.50.
- Item 1 Insurance = GBP 9.64*(6000/10000) = GBP 5.78.
- Item 2 Insurance = GBP 9.64*(4000/10000) = GBP 3.86.
We now have the values for calculating customs duty for each item:
- Item 1: GBP 6000 + GBP 633.75 + GBP 5.78 = GBP 6639.53.
- Item 2 GBP 4000 + GBP 422.50 + GBP 3.86 = GBP 4426.36.
Now, we look up the rate for calculating import duty in the tariff.
Imagine that item 1 has a customs duty rate of 4%, and item 2 has a rate of 7%:
- Item 1: GBP 6639.53 * 4% = GBP 268.58.
- Item 2: GBP 4426.36 * 7% = GBP 309.85.
Total duty: GBP 575.43.
Note that some commodities have additional duty for weight, concentration or for another third quantity. You may also need to pay anti-dumping duty, surveillance duty, or another type of secondary tax. Check the tariff for more information on your commodity.
You have now calculated your customs duty and are ready to calculate VAT!
Calculating import VAT in the UK
There are certain commodities or conditions that allow for zero or reduced VAT to be applied; however, the majority of imports will incur the standard rate of 20%.
VAT is calculated using the same values for duty, the duty, and a value for VAT adjustment. The value for VAT adjustment is to represent the post-landing charges (check your incoterm to see if this is already included) and will depend on whether you are importing as a full load or a part load:
- Full load: GBP 550 to be added per container.
- Part load / LCL: GBP 90 per 1000kgs + flat rate of GBP 80. GBP 170 minimum.
- Airfreight: GBP 0.40 per chargeable kg, minimum GBP 100.
Using the above example and one full container, we would calculate VAT as follows:
- CIF value: GBP 11,065.89.
- Duty: GBP 575.43.
- VAT Adj: GBP 550.
Total value for VAT: GBP 12191.32.
VAT at 20%: GBP 2438.26.