5.9 – Import Duties / Tariffs

Duty vs Tariff

“Duty” and “tariff” are both forms of taxes imposed by the government on goods which are imported from some other country.

A tariff helps protect the domestic industries in the market of a country by restricting the amount of goods traded and generates revenue for the government.

A duty is an indirect tax which is again imposed by the government of a country to protect the domestic industries and also generates revenue. They are basically like a consumer tax on goods imported from other nations. The two words are sometimes used interchangeably.

When a government and the economy are mentioned, the word “tariff” is more appropriately used, and when the rates are discussed and an amount mentioned, then the words used are “duty” or “custom duty.”

The term “duty” also refers to the custom duty imposed on the goods of a single person bringing in something from another country as a personal usage item.

Duty

There are different words used in reference to a duty.

A custom duty is considered an indirect tax imposed by the government of a nation on goods imported during international trade.

It is another popular word for “tariff” and refers to list of commodities along with their rates.

An import duty is the duty which is levied by a government on goods which are imported.

An export duty refers to duties levied by the government on export goods. A duty is also seen as a consumption tax because it is imposed by the government on consumers.

Tariff

A tariff is defined as a form of duty or tax levied on goods for protective purposes and revenue purposes when they are transported from one customs area to another. It is also defined as a comprehensive list or schedule of merchandise or goods along with their prices which need to be paid for each item according to the regulations and rules of the government.

Tariffs are considered the amount which needs to be paid by a nation for trading products, exports or imports. The price of the goods being traded always increases in case of tariffs being imposed on the products. Custom duties are the collected income from tariff taxes.

Tariffs are useful for a nation as they help in earning revenue for the government and also help in raising the country’s GDP. With the help of protective tariffs, the underdeveloped and noncompetitive domestic industries of a country receive encouragement and incentives to compete. It also helps in controlling trade between two nations.

Tariffs are seldom imposed on export goods and mostly imposed on imported goods. They are consumer taxes thus always costing extra money to the consumer. Tariffs are restrictions used to control foreign products entering the domestic market of a country.

Summary:

“Tariff” is defined as a form of duty or tax levied on goods for protective purposes and revenue purposes when they are transported from one customs area to another while custom duties are the collected income from tariff taxes.

There are several types of Tariff that government can impose and below two types of tariffs are important and regularly applied.

  1. Specific Tariff: – Fixed Tariff on one unit of goods imported and vary according to a type of goods imported.
  2. Ad Valorem Tariff: – Certain percentage of a tariff is calculated on the total value of the imported item.

Let’s Say company XYZ is the importer of shoes, it imports shoes to India with a total value of Rupees 2,00,000.00. The corresponding India tariff would be a tax percentage, which lets suppose in this case is 5% so the duty of XYZ to be paid to the government of India is Rupees 10,000.00

Ensure You Are Aware of the Relevant Dutys and Tariffs

This is why it’s very important for you to figure out the country’s import duty to set a market price for your products. All of these costs need to be added on.

In the United States, Congress established import duties. The Harmonized Tariff Schedule (HTS) lists the rates for imports and is published by the International Trade Commission (USITC). Different rates are applied depending on the countries’ trade relations status with the United States. The general rate applies to countries that have normal trade relations with the United States. The special rate is for countries that are not developed or are eligible for an international trade program.

Around the world, several organizations and treaties have a direct impact on import duties. Several countries have tried to reduce duties to promote free trade. The World Trade Organization (WTO) promotes and enforces commitments that its member nations have made to cut tariffs. Countries make these commitments during complex rounds of negotiations.

Another example of an international effort to reduce tariffs was the North American Free Trade Agreement (NAFTA) between Canada, the United States, and Mexico. NAFTA eliminated tariffs, except those on certain agriculture, between the three North American nations. In 2018, the U.S., Canada, and Mexico signed a new deal to replace NAFTA called the USMCA.

For most of the countries you can visit WTO website to find out more about tariff data. But first, don’t forget your product’s HS code as we talked about in chapter 5-5  

STANDARDS AND REGULATIONS

You will also need to find out the VAT rates. Duty and VAT are the two main costs that you should understand before importing from overseas.

Import Tariff – Online HS Code Checker

This link will enable you to check the import tariffs for any product:

Product Tariff Finder

UK Duties

The amount of UK Duty that you are required to pay is dependent on the declared value of the goods and the type of product that you’re importing.  Each product is given a different duty rating/percentage.  To find out the percentage you’ll have to pay on your product, you can use the online tariff at www.gov.uk/trade-tariff.

VAT on an import

When a shipping quote says, “plus UK Duty & VAT”, don’t think that the VAT is on the shipping price; it’s actually VAT on the taxable import;

  • If you buy goods from outside the EU, you won’t pay VAT to the supplier, but that doesn’t mean you won’t have to pay it at all.
  • The taxable import on which VAT is payable is the amount that you pay for your goods, plus the shipping cost, plus the UK Duty.
  • You are effectively paying VAT on everything that it costs for you to buy the goods and get them into circulation in the UK.

Duty and VAT Estimator

For questions you may have such as How much is import VAT?, we’ve simplified the calculations so it’s easy for you to estimate the UK Duty & VAT you’ll have to pay and given you an example to work with.  In reality, HMRC use a figure called a “VAT Value Adjust” and don’t work from the full shipping quote (which also affects the UK Duty) but for a good estimate you can follow this example or use our calculator:

If you pay your supplier USD$3000 (let’s call it £2000) for your goods, the UK Duty rating for these particular goods is 3.5% and the shipping quote is £300 then:

UK Duty = 3.5 % of £2000 = £70.00

VAT = 20 % of (UK Duty [£70] + Shipping [£300] + Cost of the goods [£2000]) = £474.00

Therefore, the total duties and taxes payable to import these goods would be £544.00 (£70 for UK Duty and £474 for VAT) in addition to the £300 shipping cost.

How to Pay Duty and VAT

If you’re uncertain about how to pay the Duty and VAT you owe to HMRC for your import, don’t be – it’s easy.  However, you import your goods, the company who does the customs clearance will most likely contact you to confirm how much you owe and how to pay it.

When importing using post or a courier service the same process applies. You will usually have paid the shipping cost upfront and therefore the duty and VAT can be easily calculated and paid. The company, be it Royal Mail, Parcelforce, FedEx etc., will contact you to let you know how to pay the Import Duty and VAT for your shipment.  You will usually have a number of weeks to pay the costs, if not received by this time they can return the goods to the sender.

Duty and VAT on sample products

There is no definitive answer on this as it is very dependent on a few factors. Usually there would be duty costs when importing goods from China, India, Taiwan and the USA but there are some cases where Duty and VAT relief is granted. Duty and VAT relief can be granted on sample of a product if:

  • Once imported they can only be used as sample products
  • Are of negligible value (less than £15 for businesses or £39 for gifts)
  • Are intended for the purpose of gaining orders for the commercial product they represent (i.e. are not fully functional)

Customs may change their exact figures but at the time of writing, goods with a commercial value (goods value + shipping cost + duty + insurance) of more than £15 are liable to VAT.  There is a higher threshold for UK Duty and goods with a commercial value of more than £135 are also liable to UK Duty.  The exact figures can be found here on HMRC’s site.

It is not as simple telling customs that the goods are a sample. Customs set out requirements of those importing ‘sample products’ and may seize the goods if they are not met.

The requirements when importing a product from overseas for sample purposes are to do one or more of the following:

  • have your supplier tear, perforate, slash or deface the product
  • Ensure the product is permanently marked

Products that are excluded from duty relief include:

  • Products that can be used as anything other than samples
  • Products intended for consumption

If customs relieve the product of duty due to it being seen as a sample, they will also relieve the product of VAT.

“Import VAT” in Demystifying Detail

Here’s an example for you to establish the approximate figure.  If goods are bought from China for £5000 and they are subject to £250 UK Duty and the shipping quote to your door is £500 then the VAT due would be approximately £1150:

VAT = 20 % of (£5000 + £250 + £500) = £1150

In reality, the principle above is correct but the way it’s worked out is slightly different.  This is because any two companies importing identical products purchased for the same amount should pay the same Duty and VAT figures.  It wouldn’t be fair if one company was in the Scottish Highlands and another was next door to the port in Felixstowe or Southampton.  The company next to the port of arrival may pay £200 less for delivery of a shipment than the company in the Highlands.  That would mean a £40 difference in the VAT that they paid…  HMRC have thought of this already!

The complete door to door shipping cost is generally not used by HMRC in calculating VAT. Instead they use a formula of VAT Value Adjustment.  This calculation comprises of the shipping cost to get the goods to just the EU border.  This is then added to a VAT Value Adjust figure that depends on the size of shipment. 

Less than container load (LCL) shipments have a minimum of £170 for the VAT Value Adjustment figure, full container load (FCL) shipments have a £550 VAT Value Adjustment figure and Airfreight shipments have a £100 minimum figure.

… And relax, that’s the tough bit out the way!

Tariff Codes

When importing goods to the UK from China, India, the USA or anywhere else outside of the EU, you will need a tariff code to declare the products to UK customs.

Customs tariff classification codes (sometimes referred to as HS codes, commodity codes or TARIC codes) are used to define and allocate a duty rating to each product being imported.  As the importer, you are legally responsible to ensure the correct tariff code is used.  Tax mistakes can lead to fines and delays.

Having the correct commodity code for your goods will allow you to know:

  • The correct duty and VAT ratings for your product
  • Ability to apply for preferential duty rating when importing from the certain countries (using the General System of Preference (GSP))
  • Whether import licences are required for plant/animal/hazardous products etc
  • Whether anti-dumping duties apply (where goods are exported below domestic value)

Using the Tariff to get a Duty Rating

In order to classify your goods you’ll need to make use of the Tariff (https://www.trade-tariff.service.gov.uk/sections).  Occasionally your supplier will help you out but don’t forget to check the tariff code as the global systems are structured in a similar way, but the codes aren’t always identical.

Here are our tips to finding a tariff code:

  1. Try the ‘Search the tariff’. If you type in your product and it gives you the link to a tariff code.
  2. Try searching the tariff alphabetically – this may help narrow down your options
  3. Go through the sections – here’s what you have to  do:
  • Click on the title of a main section; your goods should fall naturally into one of these
  • You should be directed to some chapters which are numbered. Click on the most appropriate chapter
  • Finally, you should have a list of options and associated codes (to the right); be careful which you chose, look at the descriptions in bold first
  • Under the bold description, you may have one final option to choose exactly what type of product it is.

When you finally click through to the tariff code, there should be an overview for you to see the duty percentage. Click the ‘Import’ tab to check whether there are any measures when importing these products from the country that you are/intend to import them from.

If you have any uncertainties it is usually best to email HMRC for the required code.

What is Anti-Dumping Duty?

Anti-dumping duty is imposed on imports being ‘dumped’ in the UK and elsewhere within the EU. ‘Dumping’ is the term for foreign exporters selling goods abroad at lower prices than the rate in their local market. They often do this to offload stock faster but it has a damning impact on the domestic markets of the importing country if not curtailed.

The anti-dumping duty measure is also imposed by the EU in an attempt to ‘counterveil’ imports that could harm UK industry.  This duty increases the cost to import particular products.  The idea is to boost domestic trade on particular items that they feel need a push in the right direction or to maintain an existing domestic industry.

Anti-dumping duty can be extremely high, and we have seen figures imposed that shoot to way over 50% of the value of cargo. Products such as bicycles, e-bikes, solar panels and ceramic tableware and tiles have had anti-dumping duties imposed on them when imported from China. These are just a few examples of the products in which the EU have imposed this scheme on.  Here is a list of the most recently applied anti-dumping duty measures as provided by HMRC.

There are a number of reasons why we mentioned above in the Tariff Codes section to check the ‘import’ tab once you have found your tariff code.  One of the main things you should be looking out for is an ‘Anti-dumping/countervailing statistic’ with an associated duty percentage.

As an example of the huge effects that anti-dumping duties have on the cost to buy products from outside the EU importing e-bikes from China now attract them.  As of 18th July 2018, all e-bike categories are subject to anti-dumping duties of 83.6% (unless the Chinese supplier has been allocated a reduced rate by the EU).  When buying these types of goods, you’ll be hit by anti-dumping duties of up to 83.6% in addition to the standard import duty rating of 6%.  The cost to buy and import these products has almost doubled as a result overnight which, the EU hope, will encourage importers to buy them from within the EU and boost the economies within it.

Anti-dumping duties are calculated using many factors. The main goal of imposing anti-dumping duties is to guarantee that the goods being imported will cost the buyer (at very least) the same as they would have cost a local trader in the exporting country. This results in the regularly ‘dumped’ products becoming less attractive to EU importers.