You must base your valuation of your imported goods for VAT on the customs value for duty. You must do this even if there’s no duty payable.
Before you work out the value of import VAT for your imported goods you must first have read Prepare to work out the customs value of your imported goods.
Items you must add to the customs value to arrive at the value for VAT
You must add the following to the customs value:
- all incidental expenses such as commission, packing, transport and insurance costs incurred up to the goods’ first destination in the UK
- all such incidental expenses where they result from transport to a further place of destination in the UK if that place is known at the time of importation
- any Customs Duty or levy payable on importation into the UK
- any excise duty or other charges payable on importation into the UK (except the VAT itself)
Commission does not include ‘buying commission’. Buying commission is considered to be a payment for services subject to the business to business rule on the place of supply of services. This means that VAT should be accounted for under the reverse charge procedure.
Find more information in Place of supply of services (VAT Notice 741A).
What ‘incidental expenses’ means when valuing imported goods for VAT
In addition to the examples already given, the term ‘incidental expenses’ also covers items such as:
- customs clearance charges
- quay rent
- entry fees
- demurrage
- handling
- loading and storage costs
Where supplies of services qualify for zero rating because they’re supplied in connection with an importation of goods, the cost of those services should be included in the value for import VAT.
In most cases, the services to be included in the VAT value are charged to the importer by a third party, for example, an agent, freight forwarder or hauler. If a particular service is provided by the importer, for example, their own transport, the cost may be left out of the value.
First destination
‘First destination’ is the place mentioned on the consignment note or any other document used to import the goods. For example, where goods are consigned to Birmingham through Dover (and the import documentation shows that) Birmingham will be the first destination for import VAT purposes. In the absence of documentation, first destination means the place of the first transfer of cargo in the UK.
Further destination
If a further destination in the UK is known at the time the goods are imported, costs resulting from the transport of the goods to that place must be included in the import VAT value.
Goods removed from customs or excise warehouses
These rules also apply to imported goods which are removed from customs or excise warehouses. This is because the goods are not deemed to be imported until they are entered to free circulation.
At that point, a place of destination beyond the warehouse will normally be shown on the relevant import documentation. That place is therefore the place of first destination for import VAT purposes.
This means that any incidental expenses incurred up to that place should be included in the import VAT value.
Any cost resulting from the transport of the goods to a further destination, if known at the time of importation, should also be included in the value.
Items you may leave out of the value for import VAT
Royalties and licence fees
You do not have to include royalty or licence fees in the value for import VAT. These are regarded as charges for services received from outside the UK. VAT is due on these payments at a later stage under the reverse charge and international service arrangements.
Find more information in Place of supply of services (VAT Notice 741A.
Discount for prompt payment
You do not have to include discounts for prompt or early payment as long as the discount is still available at the time of import.
Where the price of the goods is in a foreign currency
You must convert the price of the goods from a foreign currency into pounds sterling. You must also convert to pounds sterling any other part of the value shown in foreign currency, for example, transport, insurance, and so on. You must use the rules set out in Converting foreign currency amounts to include in the customs value.
Special arrangements for certain goods
There are special arrangements for each of the following:
- hydrocarbon oils and certain racehorses — standard values have been agreed for certain goods, such as racehorses imported for auction and hydrocarbon oils — you can get details from your Trade Associations
- certain imported works of art, antiques and collectors’ items — these are entitled to a reduced valuation at importation, giving an effective VAT rate of 5%
- computer software
- goods reimported after process or repair abroad
Calculating import VAT when imported goods are removed from a customs warehouse
You must work out the customs value of the goods at the time they’re removed from the customs warehouse. To do this follow the guidance in Prepare to work out the customs value of your imported goods and use the appropriate valuation method to work out the customs value.
After you’ve worked out the customs value you then follow the rules explained in this guidance to work out the value for VAT using the customs value.
You may need to adjust the value for VAT to take into account services carried out in:
- a customs warehouse
- an excise warehouse
- a customs and excise warehouse
Incidental expenses — simplified arrangements
There are 3 methods that you can choose from to work out the ‘incidental expenses’ element of the import VAT value. You can use whichever method best suits your particular circumstances. You do not have to try to use the methods in any particular order.
If you use the Method 1, you must declare actual costs. If you use methods 2 or 3, you estimate the incidental expenses.
Method 1
This is the method where you need to declare the actual costs.
You declare these costs at the time you import the goods. The time of importation is the time at which a customs debt becomes due or would have become due if the goods were subject to duty.
Post-clearance amendments should be submitted where costs are later found to be incorrect. This could happen, for example, if additional storage costs are incurred.
Method 2
You can use the nationally agreed rates to estimate the incidental expenses to be included in the import VAT value if both of the following apply:
- there is an international movement of goods
- the movement of the goods terminates in the UK
If your consignment does not meet these requirements, you should use methods 1 or 3.
The rates represent average costs of handling, storage, customs declarations and transport to destination. If you use these rates then you do not need to make post-entry amendments.
If we find that the import VAT due, based on actual costs, is more than the amount declared using method 2 rates, we’ll only collect import VAT arrears if:
- the importer is not registered for VAT
- the importer is registered for VAT but is restricted in the amount of import VAT that they can claim as input tax
Nationally agreed rates for Method 2
Group A — airfreight
Use whichever of these rates is the greater:
- 40p for each chargeable kilo
- a minimum amount of £100 to be added to the value at the time of importation
Group B — surface freight groupage or consolidation consignments by trailer, rail wagon or container
Use both of the following rates:
- a delivery and handling combination of £90 for each gross weight tonne
- a flat ‘other ancillaries’ rate of £80 for each consignment
This means that there’s a minimum of £170 that you need to add to the value at the time of importation.
Group C — surface freight full load consignments by trailer, rail wagon or container
The rate is £550 for each full load consignment. You must add this to the value at the time of importation.
Method 3
If methods 1 and 2 are considered inappropriate or impractical to use, you can ask about negotiating an individual agreement. If you want to do this, contact the importer’s local Excise and Inland Customs office. If you’re unsure about which office to approach you should contact imports and exports general enquiries.
Once an individual agreement is in use, post-entry amendments are not required.
Courier and express parcels consignments
A separate Method 2 rate has been agreed with AICES for these consignments.
If you cannot arrive at the value for VAT
You can ask for release of your goods against a security, for example, a deposit or a guarantee. When the value is agreed you may be asked to pay more VAT or you may get a refund — we call this adjusting the VAT.
If the deposit equals the amount of VAT due, you’ll be told. We call this bringing the deposit to account. As an alternative to a cash deposit, you may be able to use a guarantee, underwritten by a bank. You can get further advice from imports and exports general enquiries.
More information about valuation for VAT
You can find more information about valuation for VAT on imports and warehoused goods in the VAT guide (VAT Notice 700).
