When goods arrive in the UK from overseas, two taxes usually apply: import duty and import VAT. They're calculated differently, paid at the same time, and treated very differently in your accounts. Understanding both is the key to knowing what your goods really cost.
Import duty: the tax you can't get back
Import duty (also called customs duty) is a tax on goods entering the UK. The rate depends on two things:
- What the goods are. The 10-digit commodity code sets the duty rate. See our guide to HS codes.
- Where they were made. Trade agreements and preference schemes such as the Developing Countries Trading Scheme can cut the rate, often to zero, if the goods meet the rules of origin.
UK duty rates range from 0% to over 20%. Many manufactured goods fall between 0% and 12%; clothing is often 12%, footwear can be higher.
For most businesses, duty is a real cost. Unlike VAT, you can't reclaim it on your VAT return.
Extra duties
Some goods pay more than the standard rate:
- Anti-dumping duty, on certain products from certain countries that are sold below fair value. Some steel, aluminium, ceramic and chemical products from China are examples.
- Countervailing duty, to offset unfair subsidies.
- Excise duty, on alcohol, tobacco and some fuels, on top of customs duty.
Import VAT: the tax most businesses reclaim
Import VAT is charged at the same rate as UK VAT on the same goods:
- 20% standard rate, for most goods
- 5% reduced rate, for some goods such as children's car seats
- 0%, for zero-rated goods such as most books and children's clothing
It puts imported goods on the same footing as goods bought in the UK. If you're VAT registered, you can usually reclaim import VAT just like VAT on any other business purchase. For most importers it's a cash-flow issue, not a cost.
How duty and VAT are calculated
Duty is worked out first. VAT is then charged on a value that includes the duty.
- Customs value = price of the goods + freight + insurance to the UK border
- Import duty = customs value × duty rate
- Value for VAT = customs value + duty + other costs to the first UK destination
- Import VAT = value for VAT × VAT rate
What goes into the customs value
The customs value is normally the transaction value: the price you actually paid or will pay. It must also include, where they apply:
- Freight and insurance to the UK border
- Selling commissions and brokerage (commission paid to your own buying agent is left out)
- Assists: materials, moulds, tooling or designs you supplied to the manufacturer free or at a reduced cost
- Royalties and licence fees paid as a condition of the sale
- Packing costs if not already in the price
Prices in foreign currency are converted using HMRC's published exchange rates for the month of import.
Worked example 1: garments, standard rate
You import knitted garments with an invoice value of £10,000. Freight and insurance to the UK cost £1,500. The duty rate is 12%.
| Amount | |
|---|---|
| Customs value (£10,000 + £1,500) | £11,500 |
| Import duty (12% of £11,500) | £1,380 |
| Value for VAT (£11,500 + £1,380) | £12,880 |
| Import VAT (20% of £12,880) | £2,576 |
| Total due at import | £3,956 |
Worked example 2: the same garments with a preference
If the same garments were made in Bangladesh and qualified under the Developing Countries Trading Scheme:
| Amount | |
|---|---|
| Customs value | £11,500 |
| Import duty (0%) | £0 |
| Import VAT (20% of £11,500) | £2,300 |
| Total due at import | £2,300 |
That's £1,656 less to pay at import. Because VAT is reclaimable for most businesses, the real saving is the £1,380 of duty, on a single shipment. Over a year of shipments, the right origin paperwork is worth a great deal. See our guide to duty on Bangladesh imports.
How to pay, defer or postpone
Postponed VAT accounting (PVA)
VAT-registered businesses can declare import VAT on their VAT return instead of paying it at the border. The VAT is declared and reclaimed on the same return, so no cash leaves your account. You download a monthly postponed import VAT statement from HMRC to support the figures. For most VAT-registered importers, PVA is the simplest option.
Paying at import
If you don't use PVA, the VAT is paid when the goods are cleared, usually through your customs agent. You then reclaim it on your VAT return using the C79 certificate, HMRC's monthly record of import VAT paid.
Duty deferment account
Instead of paying duty shipment by shipment, a duty deferment account lets you pay monthly by direct debit. Many importers use their customs agent's account; regular importers often open their own.
Reliefs that reduce or remove duty
Several customs special procedures can suspend or remove duty in particular situations:
- Returned goods relief: goods exported from the UK and returned unchanged
- Inward processing: goods imported for processing and then re-exported
- Customs warehousing: duty suspended while goods are stored, paid only when they're released into the UK market
- Temporary admission: goods imported temporarily, such as exhibition stock or professional equipment
- End-use relief: reduced duty for certain goods used for a specific purpose, such as ship and aircraft parts
Most need an authorisation from HMRC before you use them.
Who pays: the role of Incoterms
Who pays duty and VAT depends on the Incoterms in your contract. Under most terms, such as FOB, CIF or DAP, the importer pays. Under DDP (Delivered Duty Paid) the seller pays, but that's rare for business imports, and you lose the ability to reclaim the VAT yourself.
Low-value goods are changing
At the moment, goods with a value of £135 or less don't pay customs duty, and VAT on sales to consumers is collected by the seller or online marketplace. The government has announced that the duty relief will end by October 2028 at the latest. Businesses that rely on small parcels from overseas should plan for duty on every consignment.
What you'll need
- Correct commodity codes for each product
- Commercial invoice showing the price you actually paid
- Freight and insurance costs
- Proof of origin, if claiming a preference
- Your EORI and VAT numbers
- A decision on PVA or paying at import
Mistakes that cost money
- Not claiming a preference you're entitled to, and paying duty you didn't need to
- Leaving assists or extra payments out of the value, leading to underpaid duty
- Not using PVA, tying up cash for weeks
- Losing C79s or PVA statements, making VAT harder to reclaim
We calculate duty and VAT for customers before their goods land, so there are no surprises. Ask us for a landed cost.
General information, correct as of October 2026, not tax advice.