How to calculate UK import duty on your next shipment
In short
UK import duty is worked out by classifying your goods under a commodity code, valuing them including freight and insurance to the UK border, and applying the duty rate for that code and origin. Import VAT is then charged on the customs value plus duty and certain onward costs. This guide walks through each step with an illustrative worked example for eCommerce sellers.
If you import stock, the duty bill is one of the few costs you can work out precisely before the goods arrive. The problem is that most sellers estimate it from the supplier invoice, and import duty in the UK is not charged on the invoice. It is charged on a customs value that includes getting the goods to the UK border, at a rate set by a commodity code that is easy to get wrong.
This guide walks through how to calculate UK import duty in six steps, then shows an illustrative worked example from goods value to landed cost per unit. If you want to run your own numbers as you read, use our UK import duty calculator.
Step 1: classify your goods with the right commodity code
Everything starts with classification. The commodity code decides the duty rate, whether any preferential rate is available, and whether other measures such as anti-dumping duty or licensing apply.
Commodity code vs HS code
You will see both terms. The first six digits of a commodity code are the Harmonised System (HS) code, which is used worldwide. The UK adds further digits for its own tariff. Import declarations use the full 10-digit code, while exports use eight digits. So when a supplier gives you an “HS code”, treat it as a starting point, not the answer.
How to find the commodity code
Use the UK Trade Tariff, which lets you search for a commodity code and see the duty and VAT that apply to goods coming into the UK. Work down from the chapter to the heading and subheading, reading the section and chapter notes as you go. The notes often decide the classification, not the product description.
The hard cases are predictable:
- Goods that fit two headings, such as a product that is both a toy and a storage item.
- Kits and sets, where the classification usually follows the component that gives the set its essential character.
- Parts versus complete articles, especially where you import components and assemble in the UK.
- Mixed materials, where the material that gives the product its character decides the heading.
If the code is genuinely uncertain and the order is significant, you can apply to HMRC for an Advance Tariff Ruling. It is a legally binding decision on the code to use, and HMRC says it replies to applications in 30 to 120 days.
Step 2: work out the customs value
Duty is charged on the customs value, not the price on the supplier invoice. For most imports the starting point is the transaction value: what you actually paid or will pay for the goods.
On top of that, the UK basis is broadly CIF to the UK border. According to GOV.UK, you must include:
- Transport costs up to the place where the goods enter the UK.
- Insurance against loss or damage in transit up to that point.
- Surcharges such as peak season, security or bunker adjustment charges.
- Inland transport and associated costs in the country of export.
Costs after the goods arrive can usually be left out of the customs value if they are shown separately, including insurance after the UK border and UK inland transport. This is why your incoterm matters. If you buy FOB, you need to add the sea or air freight and insurance yourself. If you buy CIF, they are already in the price, but you should still check what the supplier has included.
Other additions can apply, such as royalties or licence fees linked to the goods and “assists” you provide to the manufacturer, such as moulds or tooling. If any of those apply to you, check the treatment before you declare.
Step 3: find the duty rate, and check for a preferential rate
The Trade Tariff shows the third-country duty rate for each code. That is the rate you pay unless the goods qualify for a preference.
Origin is not where the goods shipped from
Preferential rates depend on where goods originate under the rules of origin in the relevant trade agreement, not where they were shipped from. Goods made in one country and consolidated in another do not take the origin of the consolidation country.
For goods from the EU, you can claim a preferential rate under the UK-EU agreement where the goods meet the rules of origin. GOV.UK explains that the claim is based on either a statement on origin made out by the exporter or the importer’s own knowledge. For UK imports, a statement on origin is valid for 2 years from the date it was made out, and you must keep it for 4 years from the date of importation. A claim can also be made after import, within 3 years of the importation date, if you hold valid proof of origin.
Read the guidance on claiming preferential rates of duty between the UK and EU before relying on a preference. “It came from the EU, so there is no duty” is one of the most common and most expensive assumptions we see.
Step 4: calculate import VAT on the right base
Import VAT is not charged on the goods value. GOV.UK says the VAT value starts from the customs value, then adds:
- Any customs duty or levy payable on import.
- Incidental expenses such as commission, packing, transport, insurance, handling, clearance charges and storage, up to the first destination in the UK.
- Transport to a further UK destination, if it is known at the time of import.
Most goods are charged at the standard rate of 20%, but check the VAT rate shown against your commodity code.
For a VAT-registered business that owns the goods and uses them in the business, import VAT is normally recoverable. That makes it a cash flow item, not a cost. You can either pay it at clearance and reclaim it with your import VAT certificate (C79), or account for it on your VAT return using postponed VAT accounting, which removes the cash outlay entirely.
Step 5: add the other charges
The duty and VAT are only part of the bill. A complete calculation also picks up:
- Customs clearance or brokerage fees.
- Port, terminal and handling charges.
- Inland haulage from the port to your warehouse or 3PL.
- Any anti-dumping or countervailing duty on the code.
- Your forwarder’s disbursement fee if they pay duty on your behalf.
None of these change the duty itself, but they all belong in your landed cost.
Step 6: worked example, from goods value to landed cost per unit
The table below is an illustrative example only. The figures and the 4% duty rate are invented to show the method, not taken from a real product or shipment. Check your own code on the Trade Tariff.
Scenario: 1,000 units bought FOB at £8.00 each, shipped by sea to a UK port, non-preferential origin, VAT-registered importer.
| Line | How it is worked out | Amount |
|---|---|---|
| Goods value (FOB) | 1,000 units x £8.00 | £8,000.00 |
| Sea freight to UK port | Forwarder quote | £1,200.00 |
| Insurance to UK border | Insurer quote | £100.00 |
| Customs value | Goods + freight + insurance | £9,300.00 |
| Import duty at 4% (illustrative) | £9,300 x 4% | £372.00 |
| Clearance, port handling and haulage to warehouse | £75 + £150 + £300 | £525.00 |
| VAT value | Customs value + duty + incidental costs | £10,197.00 |
| Import VAT at 20% | £10,197 x 20% | £2,039.40 |
Landed cost per unit
For a VAT-registered importer who can recover the import VAT, the landed cost excludes it:
| Landed cost component | Amount |
|---|---|
| Goods, freight and insurance | £9,300.00 |
| Import duty | £372.00 |
| Clearance, handling and haulage | £525.00 |
| Total landed cost | £10,197.00 |
| Landed cost per unit | £10.20 (rounded) |
The supplier price was £8.00. The true cost on your shelf is around £10.20, before platform fees, fulfilment and advertising. That 27% gap is where margin quietly disappears. If you are not VAT-registered, the £2,039.40 of import VAT is a real cost and adds a further £2.04 per unit.
This is the figure that should go into your cost of goods sold for each SKU. Getting it there reliably, shipment after shipment, is the core of our import and landed cost accounting service.
Common mistakes when calculating UK import duty
These are the errors that most often turn a profitable product into a marginal one:
- Using the supplier’s HS code without checking it. The supplier’s code reflects their export tariff, not the UK import tariff. You remain responsible for due diligence on the declaration.
- Calculating duty on the invoice value. If you buy FOB and leave out freight and insurance, you will underdeclare and face a demand later.
- Claiming a preference without proof of origin. No valid statement on origin or importer’s knowledge records means no preference if HMRC checks.
- Assuming EU goods are always duty free. Only goods that originate in the EU and meet the rules of origin qualify.
- Treating import VAT as a cost, or claiming it twice. Reclaim each import once, from either the C79 or the postponed import VAT statement.
- Leaving clearance and haulage out of landed cost. They are small per shipment but they add up across a year of imports.
- Forgetting to update costs when rates change. Duty rates, exchange rates and freight all move. Recalculate per shipment, not once a year.
Keeping records
Keep the commercial invoice, packing list, freight and insurance invoices, the customs declaration and any proof of origin. GOV.UK says customs records for goods you declare must be kept for four years, and VAT records for at least six years, so the practical answer is to keep the full import pack for six.
Getting the numbers into your accounts
Calculating duty once is straightforward. Doing it for every shipment, splitting freight across mixed SKUs, and keeping cost of goods accurate in Xero or QuickBooks is where most sellers fall behind. If you are planning a specific order, our pre-shipment checklist for your upcoming import covers incoterms, customs agents and freight allocation.
If you would like an ICAEW chartered accountant to check your landed costs and import VAT treatment, book a discovery call.
