How to Calculate UK Import Duties

How to Calculate UK Import Duties

If you are a newbie and considering importing merchandise into the UK, it is essential for you to understand when and how to calculate the value of goods and the import duties. First, you need to be familiar with the background of the Single Market System that is prevalent in the EU today.

Single Market

The European Union set up a Single Market in 1993 that lays down the following four freedoms:

Freedom for companies to sell their products anywhere in the member states and freedom for consumers to import from any member state without any penalty
Freedom for citizens of member states to move freely, live, and work in any country
Freedom for free flow of currencies and capital
Freedom for exchange of professional services such as insurance, banking architecture, and advertising
It is clear that the first of the four freedoms listed above allows merchandise manufactured in any of the EU-member countries to move into any other EU member country without any custom clearance. Presently, there are 27 members of the European Union, and the UK is one of them. This means goods imported into the UK from an EC member country can move with free circulation. Further, the European Union market is called the Internal Market that has been created with an objective to guarantee the free movement of goods, capital, services, and people. The objective of such a policy is to have a level playing field for all member countries of the EU.

To sum up, the following rules apply when you import goods into the UK:

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If the goods originate from a country within the EU, no duty is applicable.
If the goods originate from outside the EU, but if duties have already been paid in another EU country before they reach you, then no duty is applicable.
If the goods originate from a country other than the EU and no duty is paid, then you need to calculate the value of goods.
It is evident, therefore, that you will need to calculate the value of imported goods only if your import falls under category three above. Correct valuation is essential because if you do not do so:

You could end up paying too much duty.
You could end up paying too little that may make the HM Revenue& Customs impose a back-duty demand from you.
You could face penalties
You could end up with a lousy compliance record
The custom regulations have set out six methods for determining the acceptable custom value:

Method 1

The first method applies to nearly 90% of the goods imported into the UK and is based on transaction value. Transaction value is defined in the following way.

The price actually paid or payable is the total payment made by the buyer or to the benefit of the seller of imported goods and includes all payments made as a condition of the sale of the imported goods by the buyer or the seller.

However, the following conditions need to be fulfilled:

There must be evidence of sale.
There must be no restrictions on the use of the product.
The sale price must not be subject to additional conditions for which values cannot be determined.
Sufficient information is available as to the adjustments such as packing charges, royalties, commissions and brokerage, assists, and subsequent proceeds.
Buyer and seller are not related, or it should be established that the relationship did not influence the transaction price or the transaction value approximates the test value.
If the above method fails to calculate the value of goods, then one of the following five methods is adopted.

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Method 2 – Value Of Identical Goods

Valuation is done based on identical goods that have been imported during the same time as the goods in question. In addition, the goods must have been produced in the same country as the one being valued.

Method 3 – Custom Value Of Similar Goods

In the event no identical goods are available, then valuation is done based on similar goods. You define similar goods as those produced in the same country as the goods in evaluation that carry out the same tasks and are commercially interchangeable.

Method 4 – The Selling Price Of The Goods In the EU

In this method, the customs value is determined based on the selling price of each item of identical or similar goods in the EU.

Method 5 – Cost Of Production Of Goods

In this method, the net cost is the sum of the cost of raw materials, cost of production or processing, producer’s profit margin, plus the overheads comprising loading, handling, transporting, and delivering the goods.

Method 6 – The Fallback Rule

Here the valuation is done based on the existing data available with the EU. However, the valuations have some of the following exceptions:

Must not be based the selling price in the country of importation
Must not be based on the domestic price of the exporter country
Must not be based on a minimum custom value
Must not be based on arbitrary or fictitious values
For those who find it difficult to assess the tax they may have to pay, there are duty and VAT calculators that assist in checking the potential tax liability in a quick and convenient way.

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