Import VAT UK: How It Works and How to Reclaim It

What is import VAT?

Import VAT is the value added tax charged when goods are imported into the UK from outside the UK. It is separate from customs duty: duty is a tariff based on the type of goods and their origin, whereas import VAT is the same 20% standard rate that applies to most UK sales, just collected on import.

Most goods attract the standard 20% rate. A few categories are reduced-rated (5%) or zero-rated (for example most children's clothing and books), and the same liability that would apply to a domestic sale of those goods generally applies on import.

What import VAT is charged on (the VAT value)

This is the part that surprises people: import VAT is not charged only on the price of the goods. It is charged on the VAT value, which is:

Customs value of the goods + customs duty + freight and insurance to the UK border

So if you import £1,000 of goods with £40 of duty and £120 of freight, the VAT value is £1,160, and import VAT at 20% is £232 (not £200). Worked example:

You can model this for any product and route with the landed cost calculator, and see how to calculate import duty for the duty step.

The £135 threshold

For consignments of goods not exceeding £135 in value sold to UK consumers, the VAT treatment changed after Brexit: VAT is generally charged at the point of sale by the seller or the online marketplace, rather than collected at the border. The £135 is based on the intrinsic value of the goods (excluding transport and insurance shown separately, and excluding any duties).

• At or below £135: the overseas seller or marketplace charges UK VAT at checkout and remits it to HMRC. No import VAT at the border. (This ties into the marketplace VAT rules.)
• Above £135: normal import procedures apply, import VAT (and any duty) is collected at the border, usually via the courier or your freight agent.

Note this is a VAT rule about who collects and when; it is distinct from the customs duty de minimis. For low-value goods, duty is generally not charged below the duty threshold, but VAT still applies under the point-of-sale rule.

Postponed VAT Accounting (the cash-flow fix)

For VAT-registered importers, the single most valuable thing to know is Postponed VAT Accounting (PVA). Instead of paying import VAT in cash at the border and reclaiming it weeks later, you account for it on your VAT return: you add the import VAT to both Box 1 (output VAT) and Box 4 (input VAT), which cancel out. The net cash effect is zero.

PVA is free, needs no application (just tell your freight agent to use it and have a GB EORI number), and is a near-universal win for ecommerce importers. The full mechanics, worked cash-flow example, and how to record it in Xero/QuickBooks are in the import duty pillar and our PVA guide.

Reclaiming import VAT

• VAT-registered businesses reclaim import VAT as input tax on their VAT return, provided the goods are used for taxable business purposes. With PVA you reclaim it via Box 4 in the same return you declare it (Box 1). Without PVA you reclaim it using the monthly C79 certificate HMRC issues as evidence of import VAT paid.
• You need the right evidence. Either your monthly postponed import VAT statement (for PVA) or the C79 certificate (for VAT paid at the border). Keep these with your records.
• Non-VAT-registered importers cannot reclaim import VAT. It becomes a real cost. This is one reason many ecommerce importers register for VAT voluntarily before reaching the £90,000 threshold, see how to register.

If your imports are significant, getting the VAT treatment and PVA set up correctly is worth a conversation with an ecommerce accountant.