Customs duty and import VAT are two separate charges levied during clearance in the CDS system. Duty depends on the goods' HS code and country of origin and is calculated on the customs value (goods, transport, insurance), while import VAT is charged on the customs value plus duty, at the rate applicable in the country of clearance.
Contents
In brief — what you'll learn
- ✓ How to prepare the process and documents
- ✓ How the declaration and control work
- ✓ How to maintain compliance and settlements
How to prepare the process and documents
Division of responsibility between the parties
The minimum data set for the declaration
A correct customs declaration requires at least: the importer's EORI number, the customs tariff code (CN/CPC), a customs value consistent with the commercial invoice, the country of origin of the goods, a description of the goods, and the transport details. If any of these elements is incomplete or inconsistent with the accompanying documents, the customs authority is entitled to hold the shipment pending clarification, which generates additional storage costs and delays release of the cargo.
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How the declaration and control work
Operational stages from advance notice to release
The most common risk points and how to limit them
The most common mistakes are: an incorrect CN code leading to underpaid duty, failing to update the customs value when prices change, omitting freight costs from the customs base, and not taking advantage of the deferred VAT procedure available in the UK (Postponed VAT Accounting). It is worth preparing an internal checklist that links documentation requirements to the responsibilities of the logistics team, accounting and the person handling customs declarations.
How to maintain compliance and settlements
Record-keeping, corrections and evidence of due diligence
Under HMRC rules, customs documents must be kept for a minimum of 4 years, and in the case of disputed proceedings — until they are finally concluded. Declaration corrections after release of the goods are possible, but require submitting a C285 claim (UK) or the post-clearance amendment procedure in the AES/AIS system. Evidence of due diligence — correspondence with the customs agency, internal checklists, approved tariff classifications — is crucial in the event of an HMRC audit.
Working with a customs agency and internal audit
Summary
In summary: in the area of 'customs duty vs VAT — the differences' the most important thing is to run the process according to current official guidance, with a clear division of responsibility and documentation of every decision. Duty is charged on the customs value of the goods, while import VAT is charged on a higher base that includes duty and excise; the ability to deduct VAT depends on the importer's tax status. This approach reduces delays, cuts the number of corrections and makes it easier to defend the settlements during an audit. If any requirement raises doubts, check the current GOV.UK or KAS guidance.
Legal basis and sources
- HMRC: Check a UK EORI Number API
- GOV.UK: Making an entry summary declaration
- GOV.UK: Goods Vehicle Movement Service guidance
If the regulations or system notices are updated, check the current GOV.UK or KAS guidance before submitting a declaration.
Frequently asked questions
What is the difference between customs duty and import VAT?
Duty is a charge calculated on the customs value of the goods (invoice plus freight to the EU/UK border) at the tariff rate assigned to the CN code — it is revenue for the state budget and, as a rule, cannot be deducted. Import VAT is charged on a higher base: the customs value plus duty plus any excise duty. A registered VAT payer can deduct import VAT as input tax — in the UK, using the Postponed VAT Accounting mechanism.
Who is liable to pay duty and VAT on imports into the United Kingdom?
The party liable is the importer holding a UK EORI number, named in the customs declaration as the debtor. A customs agency acting as a direct representative lodges the declaration on the importer's behalf, but responsibility for the accuracy of the data and payment of the amounts due rests with the importer. Under indirect representation, the customs agency is jointly and severally liable for the customs debt.
How is the base for calculating import VAT worked out?
The import VAT base is the sum of: the customs value of the goods (determined using the transaction value method under Article 70 UCC or alternative methods), the duty due, and any excise duty and other charges imposed on import. Transport costs incurred after the goods have been released for free circulation in the UK are not included in the import VAT base.
Can VAT paid on importing goods into the UK be deducted?
Yes, a VAT payer registered in the UK can deduct import VAT as input tax, provided the goods are used for taxable business activity. The simplest mechanism is Postponed VAT Accounting (PVA): VAT is shown on the VAT return as both output and input tax, without the need for physical payment at the point of import. This requires selecting the PVA option on the customs declaration and holding the monthly statement from the CDS system.
What are the consequences of an incorrect duty or import VAT settlement?
HMRC can assess customs and tax arrears together with interest calculated from the date the customs debt arose. Deliberate or negligent understatement of the customs value can result in an administrative penalty of up to 100% of the understated amount and the opening of an investigation. In the case of serious breaches, it is possible for AEO authorisation to be withdrawn or the use of simplified procedures to be suspended, which significantly hampers day-to-day import operations.
Related guides
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