Whether you are importing goods from the EU to the UK for your business, or purchasing an item for personal use, you will be required to pay 20% VAT on the products purchased.

If an item is worth more than £135, an import duty cost will be incurred, further racking up the charge of your order.

Importing goods and services from abroad can be expensive, so it is important that you understand how to optimise this process.

What Imported Goods Must I Pay VAT On?

VAT is charged on nearly any item that is imported into the UK, with the exception of just a few, such as children’s clothing, books and most foods.

HMRC must be notified of any goods that you are intending to import into the country, and will ensure that any VAT and customs taxes have been paid appropriately by checking them at the border.

If they have not been paid, the goods will be impounded. If you do not then pay the tax they will be sent back to the retailer.

In most cases, VAT is paid on an item when it is purchased, added as an extra charge to the initial price by the seller, meaning it is much harder to miss.

However, there are sometimes errors in the process which could lead you to pay the wrong amount of VAT.

This may be the seller’s responsibility to resolve, if they have charged the incorrect rate of VAT. Otherwise, you may be asked to pay it on delivery of the item.

Items that are worth under £135 that are purchased from overseas sellers do not incur import VAT, but the overseas seller must still be VAT-registered in the UK, and must still pay the VAT to HMRC.

VAT-registered businesses in the UK will be able to include their VAT payments in their tax returns, allowing for better budgeting.

Responsibilities of Sellers and Buyers of Imported Goods

Post-Brexit reforms dictate that it is usually the responsibility of the seller to organise the correct VAT charges when selling to the buyer so that the appropriate amount of VAT is paid on imported goods.

A seller may structure the import so that VAT is included in the up-front price, or it may be structured so that the buyer has to pay VAT and duty prior to the goods being released to them.

This means that for both buyers and sellers, paying VAT and duty on imported goods has become more complex and may deter either party from selling or buying imported goods. 

For example, an article published in The Guardian outlined that consumers have had to pay far more for their overseas purchases, using the example of a product costing £200.

Due to the combination of VAT, customs duty and the average administration fee charged by courier services, the price could increase by up to 40% of the item’s original price, meaning that it would ultimately cost £280.

It is unsurprising, then, that consumers have also been discouraged from purchasing from abroad by these reforms.

The Guardian also reported that, due to these law changes, many courier services demanded any outstanding VAT payments be made on delivery.

Paying Tax and Duty on Imported Goods

When your goods arrive in the UK, you will be contacted by the organisation responsible for transporting them. You will be required to pay VAT on imported goods or duty tax before you can accept them and have them brought through customs.

If you do not do this within three weeks, your goods will be returned to the sender, potentially costing you lots of time and money.

Unlike other goods, alcohol and tobacco always incur a delivery charge when received at customs, regardless of their cost. This is known as excise duty, and failing to pay it will result in your goods being seized and held.

Additionally, alcohol must have a duty stamp on spirits over 35cl, and cigarettes or tobacco must have sufficient health warnings, to standards set by the UK government.

Keep Records

Keeping financial records is one of the most crucial aspects of running any business and, in the case of VAT, it must be done by law.

As it is so important to maintain paperwork when importing goods, you should ensure your records are kept in a digestible and organised format.

You should record both the VAT that you charge and that you pay on goods, which will also help you to submit your tax returns. A VAT account should show:

●    Your VAT amounts from sales and purchases
●    The VAT you are yet to pay to HMRC
●    Any VAT you can reclaim 

If your business uses the UK government’s Flat Rate Scheme, you should also include the turnover and relevant flat rate percentage.

Zero-Rated VAT

In some cases, a zero-rate of VAT can be applied to exported and imported goods, which simply means they will require no VAT payment.

This specifically applies to goods that were first exported from the UK, to then be imported at a later date, such as for exhibition. Additionally, some essential food and drink imports can be zero-rated. 

However, to qualify for zero rating, you must first be able to provide evidence that you are entitled to it, and the imports must fall within a time limit relating to when they were first exported, if relevant.

It can be a complex process to attain eligibility, so you should contact VAT experts - such as those at The VAT People - to assess your situation.

Speak To Us

If you are concerned about importing goods for your business, seek advice from the VAT experts from The VAT People. Give us a call on 03333 634 851, and we will be able to assess your situation and needs, providing you with comprehensive advice in an easy-to-understand way.

We recognise that dealing with VAT can be stressful and confusing, so we make it our mission to explain everything you need to know as straightforwardly as possible.