VAT on an import from outside the EU is not only charged on the cost to buy the goods. You’ll pay VAT on all the costs to buy and get them to you in the UK.
When you’re buying products from outside the EU your supplier won’t ask you to pay VAT on the products. Before you jump up and down with excitement, this isn’t the loophole you’ve been waiting for to get one over on HMRC! If you have to pay VAT when buying the same products in the UK, you’ll have to pay it on the import too but it’s a bit more complicated than that.
HMRC try to make VAT a fair playing field for all. If you buy a taxable product from the shop at the end of your street you have to pay VAT on the retail price. However, this price includes all the costs to get that product onto the shelf. As a result, import VAT is not as simple as paying VAT on your overseas supplier’s price.
Ahh, my brain hurts, just give me an overview!
When importing products from outside the EU, here’s how you should estimate the VAT that you’ll have to pay once the goods are cleared through UK Customs:
VAT on Taxable Import = 20 % of ([Cost to buy your goods] + [UK Duty] + [Shipping Cost & Insurance])
Here’s an example for you to establish the approximate figure. If goods are bought from China for £5000 and they are subject to £250 UK Duty (see how to work this out here) and the shipping quote to your door is £500 then the VAT due would be approximately £1150:
VAT = 20 % of (£5000 + £250 + £500) = £1150
OK, give me the detailed explanation
In reality the principle above is correct but the way it’s worked out is slightly different. This is because any two companies importing identical products purchased for the same amount should pay the same Duty and VAT figures. It wouldn’t be fair if one company was in the Scottish Highlands and another was next door to the port in Felixstowe or Southampton. The company next to the port of arrival may pay £200 less for delivery of a shipment than the company in the Highlands. That’d mean a £40 difference in the VAT that they paid… HMRC have thought of this already!
Rather than the full door to door shipping cost being used for the VAT calculation, HMRC use something call VAT Value Adjustment. When calculating the VAT that has to be paid, the shipping cost to get the goods to the EU border is taken (only part of the shipping quote). This is then added to a VAT Value Adjust figure that depends on the size of shipment. It’s supposedly an average of UK charges to clear and deliver the goods into EU circulation.
Less than container load (LCL) shipments have a minimum of £170 for the VAT Value Adjustment figure, full container load (FCL) shipments have a £550 VAT Value Adjustment figure and Airfreight shipments have a £100 minimum figure.
…. and relax, that’s the tough bit out the way!
VAT when importing from within the EU
Goods traveling within the EU are not liable for VAT in the same way as it’s a single market. HMRC have more information about VAT within the EU but the only VAT that a shipping company will charge when importing products from within the EU is VAT on the carriage itself.
What about me, I’m VAT registered?
If you’re VAT registered you still have to pay the VAT as detailed above but you can claim back any VAT that you pay when importing goods (for your business) to the UK. You can do this through your normal VAT return under normal rules. HMRC will generally send you a certificate (form C79) as evidence that you’ve paid import VAT. C79 certificates are issued monthly.
You can find more information about the VAT payable on imports here. HMRC view the ‘EU’ as the VAT (fiscal) territory of the EU, which is different from the Customs territory of the EU. The countries and territories, which make up the VAT (fiscal) territory of the EU, are listed here.