Customs Duty and import VAT are both charged when goods enter the UK and both appear on the same import declaration, but they behave very differently. Duty is a percentage, set by the commodity code and origin, of the customs value, and it is a real cost that a business cannot reclaim. Import VAT is charged on a larger figure that includes the duty, and a VAT registered business that owns the goods can normally recover it in full, often without paying anything at the border by using postponed VAT accounting.

What is the legal difference between the two charges?

Customs Duty, called import duty in the legislation, is a duty of customs charged under section 1 of the Taxation (Cross border Trade) Act 2018 by reference to the importation of goods. Its rates come from the UK tariff. Import VAT is a separate tax: section 1(1)(c) of the Value Added Tax Act 1994 charges VAT on the importation of goods, and section 1(4) says that VAT is charged and payable as if it were import duty. That is why the two are collected together through the customs system, even though their recovery is completely different.

Duty depends on the product and its origin: once you have the commodity code, the Trade Tariff shows the rate, and a preference agreement with the country of origin may reduce it. Import VAT is normally charged at the same rate as if the goods were supplied in the UK, so most goods bear the standard rate of 20%, with reduced or zero rates where those would apply to a UK sale.

How is each charge calculated?

Duty is calculated on the customs value, usually the price paid plus the transport, insurance, loading and handling costs of delivering the goods to the UK border, multiplied by the rate for the commodity code. Our guide to customs duty and commodity codes covers classification and valuation methods.

Import VAT starts from the same customs value, even where no duty is payable, and HMRC’s guidance requires you to add:

  • incidental expenses such as commission, packing, transport and insurance up to the goods’ first destination in the UK, and to a further UK destination if it is known at the time of import
  • any Customs Duty or levy payable on importation
  • any excise duty or other import charges, except the VAT itself

Incidental expenses include customs clearance charges, quay rent, entry fees, demurrage, handling, loading and storage. Royalties and licence fees can be left out of the import VAT value because they are taxed separately under the reverse charge, and a prompt payment discount can be left out if it is still available at the time of import. HMRC allows three methods for the incidental expenses: actual costs, nationally agreed rates, or an individual agreement.

A worked comparison

Illustration only. A VAT registered retailer imports goods with an invoice price of £10,000. Freight and insurance to the UK border cost £800, and UK delivery from the port to its warehouse, shown on the import documents, costs £200. Assume a duty rate of 8% and standard rate VAT.

Step Customs Duty Import VAT
Customs value (£10,000 plus £800) £10,800 £10,800
Add UK delivery to first destination Not added £200
Add duty Not added £864
Value charged £10,800 £11,864
Charge £864 at 8% £2,372.80 at 20%
Recoverable by the retailer No Yes, as input tax subject to the normal rules

The duty is a permanent cost of £864. The import VAT is larger, but for this retailer it is a timing item that comes back through the VAT return.

Can a business recover them?

Import VAT. Section 24(1)(c) of the VAT Act 1994 includes in input tax the VAT paid or payable by a taxable person on the importation of goods used for its business. HMRC’s guidance says you can reclaim import VAT on imported goods you own as input tax, subject to the normal rules, with the import VAT statement as evidence. That is either the monthly postponed import VAT statement or, if the VAT was paid through a deferment account, the C79 certificate. A shipping or forwarding agent cannot usually reclaim the VAT, because the goods were not imported for its business. A UK business that is not VAT registered still pays import VAT but cannot reclaim it.

Customs Duty. There is no equivalent of input tax for duty. Input tax is defined in terms of VAT only, so duty cannot go on the VAT return and stays as part of what the goods cost the business. How purchase costs flow into inventory is covered in stock valuation. Duty can be reduced or removed only through reliefs and procedures, such as temporary importation of goods to be exported again within 2 years, or Returned Goods Relief, or repaid where it was overpaid.

How is each charge paid?

Both charges are normally settled on the declaration, usually by a customs agent, using one of the Customs Declaration Service payment methods: an immediate payment, a cash account, or a duty deferment account that collects one monthly Direct Debit. Import VAT has an extra option that duty does not. A VAT registered business can use postponed VAT accounting to declare the import VAT as output tax and reclaim it as input tax on the same return, so no cash moves at the border. Duty must always be paid or secured, which is why many importers who use postponed accounting still keep a deferment account for the duty.

How are mistakes corrected?

The two charges are corrected by different routes. Overpaid duty is claimed back through the Customs Declaration Service, or on form C285 in some cases, generally within 3 years for overpayments, 1 year for rejected imports and 90 days where a declaration is withdrawn. A VAT registered business cannot use those routes for overpaid import VAT. It must adjust its VAT return by reducing the output tax in Box 1 and keep records to support the change. HMRC is explicit that overpaid import VAT cannot be recovered as input tax, because it was never due.

What are the common mistakes?

  • Leaving the duty and UK delivery costs out of the VAT value, which understates import VAT.
  • Reclaiming import VAT shown on a forwarder’s invoice or on someone else’s C79. Only the importer that owns the goods can treat it as input tax.
  • Assuming duty is recoverable because VAT is. Pricing decisions should treat duty as a cost.
  • Correcting overpaid import VAT through a customs repayment claim when the business is VAT registered, instead of through the VAT return.
  • Forgetting the EORI number, which is needed before any declaration can be made.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.