As a large proportion of the readership of this blog comes from the UK & because I see a lot of questions related to logistics & accurately calculating landed costs of products from new importers who are trying to import from China to the UK, I will try to address these issues in this post. I will try & do a similar post for the US in the near future.
When trying to understand International Trade logistics to & from the UK, it is important to note that the UK is a part of the European Union (EU) & because the EU is a single economic territory, goods can move freely between EU Member states without any taxes or duties.
Therefore, all EU Countries also have the same tariff rates for different HS Codes for products imported from outside the European Union & no duties are charged when goods move from one EU country to another. However, the VAT Rates within the EU countries may vary from country to country.
When sending the goods by sea, most vessels have an estimated transit time of 28-35 days on the sea once the vessel takes off from the loading port. As vessels are rarely on time, it is good practice to keep 3-4 days for your contingency planning.
You can add another 3-7 days for customs clearance and domestic logistics in the UK, for your goods to hit your warehouse in case of an FCL shipment and 7-10 days in case of an LCL shipment.
When you import from China to UK, there are three core components of the costs you need to be aware of when trying to calculate the landed Cost of your goods, i.e. the Tariff or Import duty, the Value Added Tax (VAT) & destination charges (Charged by the liner & forwarder for clearance & trucking).
There are three core components of costs you need to know in calculating landed cost
It is also important to note, that the formula for calculating duties is a bit different in the UK, than say the US & I see a lot of new Amazon FBA sellers who have been selling in the US Market get confused by this when they first enter the UK market.
In the UK, the “customs duty” is charged on the CIF (Cost, Insurance & Freight) value of the goods as opposed to the US where it is charged on the FOB Value of goods.
The CIF value includes all costs required to get the goods to the destination port, such as cost of goods, insurance, freight, mold costs etc. However, it does not have to include fee paid to sourcing or quality control companies.
: It is very important to note that it is the legal responsibility
of the importer (& not the exporter) to ensure that they declare the correct customs value of their goods to customs in the UK.
Customs duties or Tariffs are charged on most products imported from outside the EU. When you import from China to UK, the customs duty you pay depends on the Tariff classification of your product.
The tariff code also called HS Code, is a ten digit number that refers to the exact product you are importing and will show what Duty rate you are to pay on the goods. If you are not sure of the HS Code for your product, you can find this out by:
Update 27th Aug 2015
- Asking your supplier to provide you with the correct HS Code
- Asking your forwarding agent
- Searching for your product on https://www.gov.uk/trade-tariff/ or
Calling the HMRC Tariff classification helpline on helpline on (0) 1702 366077
: HMRC was kind enough to reach out to us to inform that from September 1, 2015 the Tariff Classification Helpline will be converting to an email only service. Guidance on how to use the new service is detailed in Customs Information Paper 27 (2015) which is available from the GOV.UK
For some products classification is a fairly straight forward process, for other products however, confusion can prevail as you may feel the product potentially falls under multiple tariff headings, in that case while the temptation is generally to use the tariff heading with the lower rate of duty, it is generally a good idea to use a combination of one of the first 3 strategies & then confirming the tariff classification with the customs helpline.
While in most cases, customs would levy the duty based on your classification, if the customs feel that your classification is incorrect they reserve the reclassify the product under the correct heading & levy the duty accordingly.
Finding out the Rate of Duty
Once you know the classification of your product, you can check its corresponding duty rate on the HMRC Website here
As discussed above, while the customs duty remains the same for most EU member countries, the VAT Rate varies and for the UK, VAT is charged at 20% at the time of writing this article.
When calculating VAT, I often see people using the wrong formula. VAT is chargeable on the total of CIF Value of the Goods + the customs duty
. For example, if the value of your goods is $100,000 & the rate of duty is 10%, your VAT would be charged on $100,000 + (10% of $100,000). So the total VAT payable would be 20% of $1,10,000, i.e. $22,000.
Do you need a VAT Number to Import into the UK?
Another questions I see a lot is if you need to have a VAT Number to import into the UK. The short answer is that you do not need to register for a VAT number in the UK, if your turnover is less than £82,000 at the time of writing this post.
You do not need to register for a VAT number in the UK, if your turnover is less than £82,000
More Details here
. However, it is important to note that you can only reclaim import VAT as input tax if you are VAT registered.
Also if you are a Non-UK based business, selling in the UK, the Threshold does not apply and you need to register from the onset.
The third main component broadly refers to the “Destination Charges”. These include the following:
- Forwarding Agent Charges: This is the agency fee charged by your forwarder for managing the customs clearing process & often for arranging domestic logistics, for allowing use of their deferment account, etc.
- Domestic Trucking/Haulage Costs: Your forwarder will either use the Liner’s haulage or Merchant haulage (private haulage companies) depending on what is cheaper. In majority of the cases, liner haulage tends to be cheaper & more convenient as when using merchant haulage additional charges like the LOLO (Lift-on Lift-Off) are added to the trucking costs.
- Destination Charges: These are charges charged by the shipping line & port for services like loading/unloading of container & handling of the container upon arrival. The biggest component of these is the THC (Terminal Handling Charge).
Other than the 3 key components of the destination costs, other costs may be payable. These include:
- Special Requirements: If you have special requirements, for e.g. getting a Side Loader in order to unload your container, these would normally cost extra & it is important you let your forwarder know of any such requirements well in advance. Having a container in your backyard and not being able to unload it is a nightmare.
- Customs Inspections: This is something that catches a lot of new importers by surprise.
- Anti-Dumping Duties: Anti-Dumping duties are charged by governments in order to protect domestic industries in cases where they feel that the exporting country has a specific advantage for a given product due to rebates given by the local government. A lot of governments around the world have imposed anti-dumping duties on various Chinese products & normally these duties are so high that it pretty much makes it impossible to import a given product from China profitably. Therefore, it is very important that you check in advance that no anti-dumping duties are applicable on your product.
Whether you are VAT registered or not, you will need to apply for an EORI number form HMRC, which effectively allows you to import. EORI is a unique number assigned by a customs authority in one of the European Community countries.
Most importers requiring an individual customs clearance of goods, whether imported by sea or air, require an EORI Number. This is a one-time requirement for new importers as you will use the same EORI number for future shipments.
Note: If your shipment value is below £600, EORI number is NOT required.
How to Apply for an EORI Number?
You need to complete a fairly simple application form called the C220 if you are VAT Registered or C220A if you are not VAT Registered.
Download form C220 here
. Download form C220A here
It will ask you for your trading details and details of the shipment in question. The form can be emailed to the EORI team at HMRC at [email protected]
and they will process and issue this within 48-72 hours (sometimes longer). I would recommend doing this a week or two before goods are due into the UK.
Once you have received your EORI number, you can then hand over the EORI details to your forwarding agent who will use it to clear your goods through customs upon their arrival. You can find more details about EORI on this link
It is possible to defer payment of duties & VAT by up to 30 days on average by getting a Deferment Account Number (DAN) with the HMRC in the UK. This not only helps speed up the clearance of your shipment, but is also handy in improving cash-flow.
For more details on how you can defer payment of duties & VAT, please check out this link
from the HMRC.
I often get a lot of questions along the lines of “Can I go to the port or airport and pick up the goods myself” instead of using a forwarder. The technical answer to this question is “Yes you can”, however this is not something I would recommend. There is quite a bit of paperwork involved in the clearance process and there are multiple parties involved.
Therefore, in most cases, it is simply not efficient or cost-effective to go through this process yourself and it is advisable to let forwarders/customs clearing agents manage the process.