The world is a global marketplace, and many small and medium businesses in the UK import goods and services to meet their customer’s needs. In 2014, the UK tax authority, HMRC, reported that 171,240 SMEs are classified as importers, bringing in a combined import value of GBP 120 billion in goods and services.
Done well, importing can give your business a real competitive edge, reducing costs and improving the range of goods and services you offer your customer.
As an importer into the UK, you need to know about:
- Import duty
- Minimum thresholds
- Invoice payments
- International payments (FX)
If you don’t, importing might cost more than you think, and even land you in legal difficulties.
Here’s our guide to help you import successfully into the UK, avoiding potential pitfalls, and maximising your SMEs return.
There are different rules about importing goods into the UK, which vary depending on whether your goods originate from within the European Union (EU), or elsewhere. Although the UK recently voted to leave the EU, this process has not yet started in earnest, and for now (and for the foreseeable future) the rules on importing remain the same.
Import duty is payable on goods moved into the UK from outside of the EU. In most cases, goods imported from within the EU are not liable to import duty - and in this case they’re formally known as acquisitions instead of imports.
When you’re importing goods from within the EU, you are able to access favourable conditions - but only if you can prove that your goods really did originate from an EU member state. You should have documentary evidence to demonstrate this, which needs to travel with your goods at all times.
The other possible scenario is that your imports originated outside of the EU, but are being shipped across EU country borders on their way to the UK. In this case, duty should have been paid at the point the goods first entered the EU. If this is the case with your business imports, then you should make sure that the proof of payment of initial import duty is always with your goods as they move across Europe.
If the goods you’re moving originate from within the EU, or have already had duty paid elsewhere in the EU, then they are EU acquisitions. They are described as being in ‘free circulation’ within the EU. In this case you don’t usually pay import duty, but you do still need to have a commodity code. This is used to categorise the type of goods, for tax and regulation purposes. You can check the commodity code that should be on your imports, using the trade tariff tool on the UK government website.
Usually you don’t need an import license to bring goods in from the EU, either. However, in some regulated areas, like firearms, this will be necessary.
If you import from outside of the EU, you will need an EORI number, which is issued by the UK government. Getting this can take up to three days, and it is needed before your goods can clear customs. The registration process is slightly different depending on whether your business is VAT registered or not, but can be completed online.
Your goods should have a commodity code (as for EU imports), and be declared to customs. Usually your freight forwarder will do this for you. If you are importing restricted goods, you might need a license.
You will usually have to pay import duty (and sometimes associated tariffs) on goods imported to the UK from outside the EU. The exact amount payable depends on what you are importing, and it’s country of origin.
The rules regarding import tariff and the process for declaration, are complex. The process for declaring the arrival of duty payable goods is described in the UK Government’s tariff notices (which are not for the faint hearted). And the tariff actually payable can vary, depending on the goods, their origin, their value and how they are to be used. Some goods are duty free, including books, software and some mobile devices, while some have lower ‘preferential’ duty applied depending on their country of origin.
Add to this the requirement that all calculations are done in GBP, according to the tax authorities’ guidelines, despite the fact that you probably paid for the products in a different currency, and it starts to get mind bogglingly complicated.
Because of this level of complexity, businesses importing duty payable goods to the UK often use the services of a freight forwarder or specialist importer. Not only does this keep you on the right side of the law, it ensures that you do not accidentally overpay duty, tariffs or VAT. If you decide to tackle declaring and paying import duty yourself, make sure you familiarise yourself with the UK government’s guide to the law first.
When you have to pay VAT (or import duty) in the UK, you will be paying in GBP. Therefore you need to know the value of your goods in sterling, even if you have paid for them in an alternative currency. The HMRC use a set of exchange rates which are reviewed and republished on a monthly basis - you must use these when you calculate the cost of your VAT (and any import duty payable, if you choose to arrange this yourself).
If you are importing from within the EU, and the goods are in free circulation, then you still need to add their value to your VAT return. You pay VAT at UK rates for any imported goods which are VAT liable. This is currently 20%. However, under certain circumstances you can reclaim the VAT, for example if you’re importing business supplies.
If you’re importing services rather than goods, then VAT rules apply here too. You will need to include the VAT amount on your VAT return, although in most cases this is credited back. There are different rules for some types of services, such as transport, events and catering. The full details can be found on the UK Government website.
VAT is payable on the full value of goods imported from outside the EU. This means that you must convert the cost of goods to GBP, and then add in any other costs associated with their import such as the duty you have paid, and their insurance costs. You then pay VAT on the whole amount, directly to HMRC. The full detail on how to calculate the value of your goods is available on the HMRC website.
VAT remains at the 20% rate, although there are some exceptions. For example you can pay a lower rate on imports of art or antiques, and you may be able to claim back the VAT paid on business supplies.
No VAT is paid on services imported from outside the EU.
All countries, including the UK, set a minimum threshold below which duties (and in some cases VAT) is not payable. In many cases this is set so low that most business imports are effectively above the minimum. In the UK, the minimum threshold depends on both the value of the goods imported, and the means by which they reach the country.
For goods imported by post to the UK, there is no VAT or duty on anything with a value under GBP 15 (apart from alcohol, tobacco and perfume, which are always VAT liable regardless of value). For products worth between GBP 15.01 and GBP 135, no duty is applied, but VAT is added where appropriate. For products worth over GBP 135, both VAT and import duty is payable (although import duty is waived if the total is under GBP 9). It’s worth noting that the above charges apply only to business imports, not to things imported as gifts or for personal use. Full details are given on the UK Government’s webpages.
For goods imported by air freight, sea freight or road freight, anything with a value over GBP 18 is liable to tax and duty.
When you pay for goods from abroad you will receive an international invoice, which must still comply with British law. For example, the invoice must specifically say that it is an invoice, and include the date of issue, a reference, and the details of both the supplier and purchaser (you).
Different business cultures have different invoicing conventions, so make sure your invoices meet the UK requirements.
If you are importing goods from the EU then the supplier might need to include a VAT number and charge on the invoice. You can then raise a reversed VAT invoice later. However, if you are paying for goods imported from outside the EU then no VAT is added onto the invoice. This is paid directly to HMRC at the point of the goods coming into the UK. If you then choose to reclaim VAT on the imported goods, you will need to prove that you paid the VAT at the point of import.
One of the biggest issues with paying an international invoice is that it is likely to be billed in a currency other than sterling. This means that you have to convert your cash at the point of paying, which can come with hidden additional costs.
This can add uncertainty, because you can’t be exactly sure of the cost of your goods until you receive and process an invoice. It makes it difficult to plan, or know exactly the profit margin of the products you’re importing - and the added costs can quickly mount up, too.
For an SME looking to grow, finding the most cost efficient way to deal with international payments can be an expensive headache.
Business owners often think that the best way to pay an international invoice is through their regular bank. However, this is not always the case. In fact, banks often offer their customers poor exchange rates, as well as adding in administrative fees to process the transaction.
You can see this by companying the rate your bank offers you, to the mid market rate. It’s easy to find the current mid market rate through Google or a site like xe.com. The difference between the cost of your invoice paid at this mid market rate, and the cost at the rate offered by your bank - plus any fees and charges - is the real cost of paying your international invoice.
To use an example, recent research conducted shows the average GBP/USD mid market rate at 1.2664. However, the main UK banks for the same time period were offering on average a rate of 1.2328. A business has a USD 2000 invoice to pay, for goods that have recently been imported. If they use the mid market rate, the cost in British Pounds is GBP 1,579. If I accept the bank’s rate, it’s GBP 1,622. Without adding any additional fees at all, the transaction has already cost me over GBP 40. Read our full research here.
Avoid high fees and unfair exchange rates with TransferWise. Send money using the mid-market rate, the same rate you see on Google.
If you’re starting to import to the UK then you need to make sure you’re paying international invoices without waste. Using your bank might not be your best option. Transferwise can process your transaction more efficiently, and pass the savings on to you.
Importing goods into the UK is a highly regulated area, so you should familiarise yourself with the rules before you start. The UK Government website provides a wealth of information for those just starting to import goods to the UK, which is regularly updated to reflect changes in the law.
For more on how Transferwise for business works, check out our dedicated web pages.