Working out what taxes are owed on goods upon their arrival in the UK can be complex and confusing, but there are cost effective ways of making Duty and VAT payments.
What options are there for paying Duty and VAT on shipments?
Use a freight forwarder’s deferment account. – The freight forwarder will charge a “usage fee” calculated as a percentage of the amount outlaid (typically 1% - 5%) or a flat fee (typically £10.00 upwards). Your freight forwarder normally customs clears the goods through their deferment account and releases them for delivery once your payment has reached their bank account.
Use a freight forwarder’s FAS (Flexible Accounting System) account. There is no “usage fee”. Your freight forwarder will give you a unique reference number and HMRC bank details to transfer the amount owing. Your goods will customs clear once payment reached the HMRC bank account.
Have your own duty deferment account with HMRC. There is an application process and costs that are associated with this, as you will be required to have a guarantee bond from your bank for twice the amount of the deferment account value. The main advantage is that the duty and VAT owed is taken from your account once a month, so effectively you could get up to 30 days “credit” before you pay, and have sold and received payment for the goods before the duty and VAT is due; thus helping your cash flow.
A fourth option is SIVA (Simplified Import VAT Accounting). SIVA allows businesses to operate a duty deferment account for VAT purposes, but allows for a reduction in the level of financial guarantee required.
Your freight forwarder will be able to advise you on the advantages and disadvantages of each of these options and assist you in selecting the best option for your shipments.
Duty is calculated as a percentage of the total of:
Freight charges, Insurance (if applicable) and the commercial invoice value
The Duty amount is added to the total of the above and then VAT (if applicable) is calculated to the new figure. The table below shows an example of the calculation:
You will receive a C88 and E2 from your freight forwarder. This is your customs import entry.
If you have any questions on Duty and VAT payments, please feel free to ask in the Comments section below, or via email or Twitter.