This blog will serve as a step-by-step guide on how to pay import tax on imported goods in 2024. Understanding custom fees, taxes, and duties is essential when importing from China to the UK. If you are looking to grow your business and supply chain, but are unsure on what charges you must pay, or how it all works, then this is the blog for you!
1. Understand Types Of Import Tax
Tax is something to consider throughout the duration of your goods travelling from one location to your destination. There are three types of tax you should be aware of when importing goods to the UK.
- Customs (UK) Duty– Type of tax payable on the value of imported goods as well as the shipping cost. The amount of customs duty payable depends on the type of goods that are being imported.
- Import VAT– the generic term used to indicate money owed to the government on the movement of goods. This is calculated on the amount you’re paying your supplier, the cost of shipping AND the UK Duty.
- Value Added Tax (VAT)– In most cases, VAT is paid on an item when it is purchased, as it is added as an additional charge by the seller (this applies to your customers if you are VAT registered but won’t be applicable when purchasing goods from your supplier). UK VAT equates to 20% on goods.
Depending on the type of goods, there can also be additional taxes, such as Excise Duty, (payable on alcohol and fuel) or Anti-dumping duties (payable on goods that are exported in excess or ‘dumped’ from countries such as bikes or ceramic mugs).
Customs duty serves two main purposes: to sustain local governments and raise funds to boost the market advantage of locally grown or produced goods that are not subject to import duties.
HMRC must negotiate with countries a preferential import rate and in some cases will impose an additional duty, known as Anti-Dumping Duty. Anti-dumping is applied for goods that are considered to have been unfairly subsidised by foreign governments.
2. Classification And Value Of Goods
Import commodity codes (also known as tariff codes) are used to classify and describe the products that are being imported.
Commodity codes are used to determine that goods are safe and legal to import, and for border officials to calculate any tax owed. In fancy terms, they are an internationally recognised reference number.
An import will also require customs valuation, which is essentially the value of goods as declared on the commercial invoice (provided by your supplier). This figure is used to determine how much UK Duty & VAT is to be paid (calculated as a percentage depending on the goods being imported).
3. Calculate The Import Taxes
Calculating import taxes will provide insight as to whether importing goods is viable for your business. There is of course the initial cost of shipping the goods, however, taxes may come as a hidden cost for some that can make the endeavour too expensive.
Using online calculators, like our Duty and VAT estimator, can give you a rough idea of how much you will need to pay. All you need is the cost of goods, shipping quote and UK Duty percentage.
To find the percentage you’ll be paying in UK Duty you’ll need to establish which commodity code best describes your goods. You can use our commodity code guide to navigate the HMRC website, as this can be quite daunting if you don’t know where to start!
4. Prepare Documentation
- Commercial Invoice– A crucial documentation tool in international trade transactions. It stands as a formal request for payment from the buyer to the seller for goods or services provided. This is then used to declare the value of goods to UK Customs.
- Bill of Lading– Issued by a transportation company to the shipper. The document depicts the type, quantity, and destination of the goods carried. It also releases ownership of the goods once payment has been made.
- Packing List– Details the items in the shipment and any relevant details such as:
- Number of packages within the shipment
- Detailed description of each package
- Volume and weight of each package & entire shipment
- Certificate of Origin (CO)– Serves as confirmation of the product’s origins and a declaration to customers and trade requirements. COs are mostly required for customs clearance procedures, determining duties or legitimacy of imports. (this is not always required but it may be worth asking if your supplier is able to produce it)
- CE (or other safety) Certificates– Some products such as toys or electronics require CE certificates to ensure the safety of the product and to ensure this adheres to trading standards in the UK. Without this, you could risk your products being held at the border.
- Customs Declaration Form– (not something you will need to worry about) An official documentation that lists off and gives details of goods being imported or exported. It is used by importers to indicate their plans to transfer goods under a specific customs procedure. However, we take care of this on your behalf!
5. Pay Import Tax
We will declare your goods to HMRC and pay the UK Duty and Taxes on your behalf. We will then invoice you an inclusive invoice of the Shipping cost, UK Duty and Import VAT to make the process as easy as possible for you as the importer.
This means you will not need to set up a deferment account. You can also use Postponed VAT accounting (PVA) if you are VAT registered which can help with cash flow. You can therefore declare and reclaim Import VAT on the same VAT return instead of paying upfront on the import. To set this up please let us know you’d like to use this, and we can send over a form for you to fill out.
6. Maintain Records Of Import Tax Payments
Maintain records of all paid import taxes, transactions, and correspondence related to your import taxes. This is so that on the off chance something falls through you have a paper trail to cover your back.
A summary of transactions may be used to conduct regular audits to ensure compliance and track import expenses.
Import Goods With Shippo
We hope you are now confident with how to pay import tax on imported goods in 2024.
At Shippo, we understand that wrapping your head around import taxes and getting all the necessary documentation together can be difficult. That’s why we take control of organising and managing your shipment. You can find out more about our shipping process here.
If you require any further guidance on how to pay import tax on imported goods or would like to work with Shippo, contact us today!