EU ICS2 and GB S&S Covered: ENS in 90 Seconds

Learn More

All You Need to Know About Customs Import Duty and Tax

When importing items outside the European Union, you must pass through the customs import duties and taxes. However, entering this exciting world involves encountering a number of unforeseen issues, particularly regarding customs charges.

A vital electronic document, an import customs declaration, provides comprehensive information regarding the import, including your details, those of the exporter, product specifications, value, and country of origin. By ensuring the accuracy of this declaration and having prior knowledge of applicable duty rates, you can prevent any mishaps.

According to the World Trade Organisation, “The global trade has increased to $25.3 trillion in 2022.” Given this increasing number, it’s clear that comprehending the financial importance of importing goods is crucial. This exponential rise highlights how imports are becoming more and more significant in today’s trade environment. In the contemporary interconnected global economy, success relies on the capacity to comprehend the financial ramifications of importing goods.

This blog post delves into the importance of customs duties and taxes and everything you must know.

Understanding customs import duties

A fee imposed by a government on products entering a country is known as a customs duty, often referred to as an import duty or tariff.

 

The customs duties have two main goals:

 

Protecting local industries: Placing tax or duty on imported goods encourages local job development and manufacturing, which will reduce their competitiveness when compared to domestically produced alternatives.

 

Government revenue: Customs charges provide governments with a considerable amount of revenue that goes towards funding national budgets.

Types of Taxes and Duties

HMRC primarily implements two types of taxes and duties on imported goods.

  • Customs duties
  • Value added tax

Customs duties

Customs duties are applied to imported goods by HMRC that are valued at more than 135 GBP. These import duties normally range from 0% to 25% of the value of the goods; which are not applied to gifts.

If the gifts are priced between 135-630 GBP, they are subject to a custom import rate of 2.5% or less, while gifts over GBP 630 will be subject to higher rates based on their individual commodity codes.

Goods Type and Value

Value added tax (VAT)

Generally, imported goods are subjected to 20% of the VAT rate. Nonetheless, a few items, such as child car seats, health products, and fuel heating, incur to 5% VAT rate.

It is crucial to remember that even though most books, food, and children’s clothes are VAT-exempt, the sale of these items needs to be reported on your VAT return. Furthermore, gifts worth less than GBP 39 are VAT-free.

VAT rates

Calculating customs duties and taxes

Calculating customs taxes and duties is a major challenge faced by UK importers. As per Statista survey, “30.3% importing businesses had to deal with customs duties and taxes problems at the UK borders”.

Statista Customs survey

To keep you free from this hassle, iCustoms has come up with its automated tool, i.e. iCalculator; it helps with tax calculations within a matter of minutes.

Furthermore, we will also equip you with the manual calculation of the customs duties and VAT by considering the following example:

Goods

Calculating customs duties

Customs duties can be calculated by two methods:

CIF

  • CIF takes into account the entire cost, which includes the value of the item, insurance, and freight.
  • CIF value is calculated by adding the insurance and freight costs to the commercial value of the goods.
  • For instance, if you have 2000 umbrellas worth GBP 5 per piece, the total GBP becomes 10,000. Plus GBP 500 for insurance and freight, your CIF value is GBP 10,500.
  • To determine the customs duties, you then multiply this CIF value by the applicable customs duty rate, which in this case, is 4%. Thus, 10,500 GBP x 4% = 420 GBP.
  • The CIF value plus the duties would equal the total cost of your shipment, including customs duties: GBP 10,500 + GBP 420 = GBP 10,920.

FOB

  • FOB does not include goods or insurance; it only accounts for the value of the goods.
  • To calculate the duty rate, just multiply the total value of your goods.
  • In the identical scenario, the customs duties would be GBP 400 with a total goods value of GBP 10,000 and a 4% duty rate.
  • Customs duties and the total goods value equal GBP 10,000 + GBP 400 = GBP 10,400, which is the total cost of your shipment.

Calculating Value-Added Tax (VAT)

After calculating the value of your goods either by FOB or CIF, multiply it by the VAT rate designated by the UK government on the tariff trade site.

Resuming the same example, the calculation is carried out as follows:

 

CIF

 

GBP 10,500 x 20%= 2,100 GBP

 

FOB

 

GBP 10,000 x 20 %= 2,080 GBP

Comprehending custom import fees

A number of costs related to customs clearance must be taken into account when importing products. Among them exist:

 

Customs import rate: The specific rate for a given commodity depends on the product category and the country of origin. Prior research on duty rates is necessary for an accurate estimate of costs.

Specific import information and rules

It is essential to do an extensive study on customs import regulations (also known as import restrictions) prior to importing any items. This study ought to include:

 

Comprehending regulations: Become acquainted with the particular import laws governing the products you plan to import. These rules could cover things like licence requirements, restricted products, and standards for product safety.

The bottom line

Gaining knowledge of customs duties, import taxes, and the import clearance procedure will enable you to facilitate the entry of goods into a country in a streamlined and economical manner. When creating import strategies, it is imperative to conduct comprehensive regulatory research, ensure the preparation of precise documentation, and account for all possible expenses.

For additional information regarding import duties and taxes, refer to authoritative resources furnished by your country’s customs authority, such as iCustoms. Our sophisticated AI-driven iCalculator automates the calculation of customs taxes and duties, saving you time and avoiding extra costs.

FAQ's

What is a customs import entry?

A Customs Entry, also referred to as a Customs Declaration, is a bunch of information that is submitted to customs authorities, such as HMRC, when goods are exported or imported.

What are customs and import taxes?

Customs duties and import duties are levied by the government on imported goods. They serve as indirect taxation that helps the government generate revenue.

Are import charges the same as customs?

Yes, import charges are similar to customs. They both pertain to the levies imposed by the government on imported goods.

How long does import customs take?

Import customs clearance generally takes around 24 hours; however, delays may occur due to incorrect or incomplete documentation.

You may also like:

Subscribe to our Newsletter

About iCustoms

iCustoms is an all-in-one solution helping businesses automate customs processes more efficiently. With AI-powered and machine-learning capabilities, iCustoms is designed to streamline your all customs procedures in a few minutes, cut additional costs and save time.
Start Now

Solutions

Products