Import Tax, what is the difference between VAT and Duty

When your products make it to their destination port in the EU and UK, you will get a bill to pay from your freight forwarder.  You will most likely be anxious to pay for the import taxes and get your goods where they need to be.  You will usually pay this amount at once.  Some freight forwarders won’t even break down the details of what you are paying for. Just noting that it is import taxes.  But the details are very important.

Duty

The duty is a percentage of the cost of the products you paid for and the freight cost, insurance and other fees.  So if you paid £3000 for the products, another £1000 for freight and insurance, that brings the total landing cost for duty to be calculated at £4000 pounds. If the rate of your product is 3%, you will pay £120 in duty on your goods.  The percentage will depend on your HS code.  The duty is final and will also be considered an expense in your accounting for your product.

VAT

VAT is short for Value Added Tax. The VAT of the import tax will be 20% on standard goods in the UK.  This varies from country to country.  You will pay VAT on the product cost, freight and insurance and the duty.  So using the same example above, you will pay 20% of £4120 for a VAT amount of £824.  The good news is, as long as you are VAT registered you can claim this back on your VAT return. Just remember when you are bookkeeping, that the import VAT will not be an expense since you will be claiming it back.

You can see the importance of not having these two mixed up or bundled together. Hopefully this clarifies the difference between VAT and duty and you are claiming back money that you are entitled to. Just don’t forget that the duty you paid will not be claimed back.