Customs value is normally the transaction value: the price paid or payable for the goods in the last sale for export to the UK, adjusted by adding costs such as freight and insurance to the UK border, assists and royalties that are a condition of sale, and removing items such as UK delivery and separately shown buying commission. Only if that method cannot be used do you move, in strict order, to the five fallback methods based on identical goods, similar goods, UK resale prices, production costs and finally a flexible method.

Why does every import need a customs value?

Most UK duty rates are ad valorem, meaning a percentage of the customs value, and import VAT is calculated on a value built up from it. HMRC requires the customs value to be declared even when no duty or VAT is due and when goods enter a customs warehouse, because it feeds UK trade statistics.

The legal rule is in section 16 of the Taxation (Cross border Trade) Act 2018: the value of goods is their transaction value when sold for export to the UK, subject to inclusions and exclusions set by regulations. The detail is in Part 12 of the Customs (Import Duty) (EU Exit) Regulations 2018, regulations 107 to 128. In Northern Ireland the Union Customs Code valuation rules continue to apply. Our page on customs duty and commodity codes explains how the value combines with the tariff rate.

In what order are the methods applied?

Regulation 108 sets a strict sequence. You apply Method 1, then Method 2, then Method 3 until one gives a full value. If none does, you apply Method 4 then Method 5, or Method 5 then Method 4 if the declarant chooses, and finally Method 6. HMRC states that Method 1 is used for over 90% of imports liable to ad valorem duty, and that if you use any later method it may ask why an earlier one was not used.

When can you not use the transaction value?

Method 1 needs a sale. HMRC lists situations with no sale, including gifts and free samples, goods on consignment, goods moved between branches of the same legal entity, goods on hire or lease even with an option to buy, and goods on loan. Method 1 also fails if:

  • there are restrictions on the buyer’s use of the goods, other than legal requirements, geographical resale limits or restrictions that do not substantially affect value
  • the price depends on conditions whose value cannot be worked out, such as a requirement to buy other goods in set quantities
  • the seller shares in resale proceeds and the share cannot be added

Where there is a chain of sales, use the last sale that caused the goods to be exported to the UK. HMRC’s examples show that a sale during the voyage can be the relevant one, and that an importer buying after arrival can only use the earlier price if it can obtain that invoice.

What must be added to the price?

Unless already in the price, HMRC’s Method 1 guidance requires you to add:

  • Delivery costs to the UK border. Transport, insurance, loading and handling to the place of introduction: the UK port for sea freight, the point the aircraft first crosses the UK border for air freight, and the first customs office for road and rail. Surcharges such as bunker and fuel adjustments and peak season charges are included.
  • Containers and packing, including labour and materials.
  • Selling commission and brokerage.
  • Royalties and licence fees that relate to the imported goods and are paid as a condition of sale. HMRC treats them as a condition of sale where the seller or a related person requires the payment, where it satisfies the seller’s obligation, or where the goods cannot be bought without paying the licensor.
  • Assists: materials, components, tools, moulds and dies supplied free or at reduced cost, and engineering, design and artwork done outside the UK and needed for production.
  • Proceeds of resale passing back to the seller.

What can be left out?

Provided they are shown separately from the price, you may exclude delivery costs after the goods reach the UK, buying commission paid to your own agent, interest under a financing arrangement, payments for the right to reproduce the goods, and charges for erecting or assembling plant after import. You can also deduct UK duty included in a delivered price; HMRC’s formula is the duty inclusive price multiplied by the duty rate, divided by 100 plus the duty rate. Earned quantity and trade discounts, cash discounts within HMRC’s conditions, advertising and warranty costs you bear yourself, dividends and unrelated management fees are also excluded.

Buying commission is the item most often lost. HMRC may ask for the agency contract, the original seller’s invoice and purchase orders, and if the evidence is unsatisfactory it may treat the payments as part of the price.

What if buyer and seller are related?

Related includes officers and their companies, partners, employer and employee, common control, family members, and holding 5% or more of the voting rights in a company. Regulation 108(9) lets HMRC presume the price is not the full value unless satisfied otherwise. You can show the relationship has not affected the price by comparing it with accepted values for identical or similar goods sold between unrelated parties, or by showing it is set as between unrelated parties or is fully costed. HMRC accepts independent transfer pricing studies as evidence, but says a margin based transfer pricing model will not usually support Method 1, and that retrospective price increases lead to a demand for the extra duty.

How do Methods 2 to 6 work?

  • Method 2 uses a transaction value already accepted for identical goods, produced in the same country and imported at or about the same time. If several values exist, use the lowest.
  • Method 3 does the same with similar goods, which are commercially interchangeable and do the same job.
  • Method 4 starts from the UK unit price in the greatest aggregate quantity to unrelated buyers, using sales up to 90 days after import, then deducts usual commission or profit and general expenses, UK transport and insurance, and UK duties and taxes.
  • Method 5 builds the value from materials, fabrication, packing, the producer’s usual profit and general expenses, and delivery to the UK border, using the producer’s accounts. In practice it usually needs a related supplier.
  • Method 6 adapts the earlier methods flexibly, consistent with World Trade Organization principles, for example by extending the 90 day limit or using the supplier’s export price list for UK sales.

A worked example

Illustration only. A Leeds retailer buys garden furniture from an unrelated Vietnamese maker for £20,000. It pays £1,500 sea freight to Felixstowe, £300 haulage from Felixstowe to Leeds and £100 insurance, all shown separately. It pays its buying agent £800 and the brand owner a £1,000 royalty that the maker requires as a condition of sale.

Item Customs value
Price paid £20,000
Freight to Felixstowe £1,500
Insurance £100
Royalty, condition of sale £1,000
Buying commission, shown separately excluded
Haulage after arrival excluded
Customs value £22,600

For import VAT, HMRC requires incidental expenses such as transport and insurance to the first destination in the UK to be added to the customs value and the duty, so the £300 haulage to Leeds, shown on the transport documents, comes back into the VAT value.

Currency, rulings and records

Foreign currency is converted at the rate fixed in the contract where it applies, otherwise at HMRC’s published rates when the import declaration is accepted. For certainty in advance, you can apply for an Advance Valuation Ruling before importing; HMRC aims to decide within 90 days of accepting the application, and a ruling can last up to three years. Keep valuation evidence for at least four years. Common mistakes are using the wrong sale in a chain, forgetting tooling and design assists, and omitting royalties paid to a third party. Valuation accuracy is also a core test for Authorised Economic Operator status, and errors found later may need VAT corrections as well as duty adjustments.

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Sources

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.