UK Import Duty – Everything You Need to Know

For small businesses in the UK that import goods from abroad, navigating the complexities of import duty is crucial. Import duty is a tax collected on goods brought into the country, impacting the cost and profitability of imported products. This guide aims to demystify import duty, explaining what it is, why it exists, who needs to pay it, and how it affects small businesses.

What is Import Duty?

Import duty is a type of tax levied by the UK government on goods imported from outside the UK. The primary purposes of import duty are:

• Revenue Generation: It provides a significant source of income for the government.
• Protecting Domestic Industries: By making imported goods more expensive, import duty can help protect local businesses from foreign competition.
• Regulation and Control: It helps monitor and control the flow of goods into the country, ensuring compliance with national standards and regulations.

How is Import Duty Calculated?

The amount of import duty you pay depends on several factors:

• Type of Goods: Different categories of goods have different duty rates. Goods are categorised by “commodity codes.” You can find out the commodity code of an item here.
• Value of Goods: Duty is typically calculated as a percentage of the goods’ total value, which includes the cost of the goods, shipping, and insurance (known as the CIF value).
• Country of Origin: Goods from some countries may benefit from reduced or zero duty rates due to trade agreements.

Who Needs to Pay Import Duty?

In the context of small UK businesses, the responsibility for paying import duty generally falls on the importer. This means that if you are importing goods into the UK for your business, you need to account for any applicable import duties. Key points to consider include:

• Direct Importers: If you import goods directly from overseas suppliers, you will be responsible for calculating and paying the duty.
• Using Freight Forwarders: Many businesses use freight forwarders or customs brokers to handle import formalities, including the calculation and payment of duties. However, the ultimate responsibility lies with you as the importer.

Steps to Pay Import Duty

Classify Your Goods: Determine the correct tariff classification for your goods using this page. This will help you understand the specific duty rate applicable.

Calculate Duty and VAT: Use the CIF value to calculate the duty owed. Don’t forget that import VAT (Value Added Tax) also applies and is calculated on the total value of the goods plus duty.

Submit Import Declaration: Submit a customs declaration form to HM Revenue and Customs (HMRC), usually via the Customs Handling of Import and Export Freight (CHIEF) system or the new Customs Declaration Service (CDS).

Pay the Duty: Payment can be made directly to HMRC. Often, freight forwarders handle this process on your behalf and include the duty costs in their invoices.

Why Understanding Import Duty is Important for Small Businesses

Understanding and accurately calculating import duty is essential for several reasons:

• Cost Management: Import duties directly affect your cost of goods sold (COGS). Miscalculating duty can lead to unexpected expenses, impacting your profit margins.
• Pricing Strategy: Knowing your total import costs helps in setting the right prices for your products.
• Compliance: Properly managing import duties ensures compliance with UK laws, avoiding potential fines or legal issues.
• Cash Flow: Duty payments are due at the time of import, so planning for these expenses is crucial for maintaining healthy cash flow.

Tips for Small Businesses

• Stay Informed: Regularly check updates to the UK Global Tariff, as rates and regulations can change.
• Use Expert Services: Consider hiring a customs broker or freight forwarder, especially if you’re new to importing. Their expertise can save you time and reduce the risk of errors.
• Plan for Costs: Include duty and VAT in your financial planning to avoid cash flow problems.

Import duty is a critical consideration for any small UK business involved in importing goods. By understanding what import duty is, how it is calculated, and who is responsible for paying it, you can better manage your costs, ensure compliance, and optimise your pricing strategies. Proper planning and use of expert services can help you navigate the complexities of import duty, contributing to the smooth operation and profitability of your business.