Customs value, customs duty and import VAT: the order of calculation

1. The three values to keep separate

Customs value

Customs value is the value used to assess customs duty under the applicable rules. It is not automatically the same as the total paid to the supplier, and it is not automatically the same as the final landed cost in your warehouse.

The HMRC customs valuation guidance explains the UK methods and adjustments that can apply. In many transactions the importer starts by testing the transaction value, then considers the required additions and whether the value is acceptable under the rules.

Customs duty

Customs duty is calculated using the applicable duty measure for the goods. A percentage duty requires a valid classification, origin treatment and customs value. Some goods can have specific, compound, quota, preference, anti-dumping or other measures. Do not assume every product uses one simple percentage.

The GOV.UK Trade Tariff helps UK importers research commodity codes, rates, licences and measures. EU importers should use Access2Markets, the relevant EU tariff tools and the destination customs authority.

Import VAT or another import tax

Import VAT is calculated on a tax base defined by the jurisdiction. It can include the customs value, duty and specified incidental costs. The base and timing can differ by country, procedure, destination and tax status.

For the UK, HMRC's import VAT valuation guidance explains that the VAT value can include customs value, import duty and relevant incidental expenses. For the EU, the European Commission's taxable-amount guidance describes the customs-based approach and additions under the VAT framework.

Keep import VAT in two views:

• Cash at import: the amount that may need to be paid or accounted for at the border.
• Economic cost: the amount that remains a cost after the business's valid recovery or accounting treatment.

Do not set import VAT to zero simply because you expect recovery. Show the cash line and the recovery assumption separately.

2. Capture the inputs before calculating

Create one calculation record for the product and route. At minimum, capture:

The commodity-code research record helps gather the product facts before a code is treated as an input. The Incoterms guide helps reconcile the supplier's price boundary with the physical route.

3. The calculation sequence

1. Describe the exact goods

Start with the goods, not the percentage. A product name such as “kitchen organiser” can cover different materials, functions, construction and uses. Those differences can change classification, duty, restrictions and evidence requirements.

Keep a product description that a customs professional could understand without opening your marketing page. Include the material, main function, condition, components, dimensions, intended use and whether the item is a complete product, set or part.

2. Establish a working customs value

Use the applicable customs valuation rules and the transaction evidence. A commercial model may begin with:

```text invoice price for the imported goods + relevant additions required by the customs rules

• amounts that are separately identifiable and legitimately excluded

= working customs value for review ```

The exact treatment is not universal. Freight, insurance, packing, commissions, assists, royalties, related-party pricing and post-import costs can need different treatment. Record the assumption rather than hiding it inside the invoice line.

If the transaction value cannot be used, a different valuation method may apply. That is a point to ask the broker or customs adviser, not a reason to invent a substitute percentage.

3. Verify classification and origin

The code determines more than duty. It can affect import VAT, licences, restrictions, quotas, trade remedies and additional declaration data. Origin can affect preference, quota and other measures.

Check the code and origin together. A supplier's six-digit HS suggestion is a useful lead, not a final destination-specific decision. The UK and EU can extend the shared HS structure differently, and a product-specific decision remains jurisdictional.

4. Find the duty measure

Record:

• the exact code and description;
• the origin country and preference evidence;
• the importing country or customs territory;
• the duty measure and rate or amount;
• any quota, suspension, trade remedy or additional code;
• the official source URL; and
• the date checked.

If the duty rate is not confirmed, use a range in the commercial model. Do not use a remembered rate because a product “looks similar” to an earlier import.

5. Calculate duty with stated assumptions

For an illustrative ad valorem rate:

``text customs duty = working customs value x illustrative duty rate ``

For a specific duty or a mixed measure, use the measure stated by the authority. Show the unit, weight, quantity or other basis that the rate requires.

6. Identify the import VAT base

Start with the customs value. Add the duty and any specified incidental costs that belong in the tax base. Check whether the first destination or a further destination is known and whether the relevant rule requires transport or other charges to be included.

Then apply the applicable tax rate or procedure. Keep these columns separate:

4. UK example, dated 14 August 2026

This scenario is intentionally simple. It uses an illustrative duty rate of 5% and an illustrative import VAT rate of 20%. Neither rate is a recommendation. Check the exact product and route in the UK Trade Tariff and confirm the import VAT treatment with the broker or adviser.

Assumptions

• Goods invoice: £1,200.
• Freight and insurance to the UK import point: £260.
• Working customs value: £1,480, subject to the applicable valuation method.
• Illustrative duty rate: 5%.
• Incidental costs included in the illustrative VAT base: £80.
• Illustrative import VAT rate: 20%.
• The business's recovery treatment is not assumed.

Calculation ladder

The £400.80 is an illustrative cash view. It is not automatically the economic cost. If the importer can validly recover the import VAT, the economic tax cost may be the duty plus any non-recoverable charges. If recovery is unavailable or delayed, the cash-flow impact is different. Record both.

The GOV.UK import-goods guide explains the wider process, including the need to provide goods information in the import declaration. The HMRC import VAT page should be checked for the current valuation treatment of the actual transaction.

5. EU example, dated 14 August 2026

EU import VAT rates and procedures depend on the Member State and transaction. The example below uses an illustrative duty rate of 7% and an illustrative VAT rate of 19%. Do not copy them into a calculation without checking the exact destination, code, origin, valuation and tax status.

Assumptions

• Goods invoice: €1,260.
• Freight and insurance to the EU import point: €240.
• Working customs value: €1,500.
• Illustrative duty rate: 7%.
• Incidental costs in the illustrative tax base: €75.
• Illustrative VAT rate: 19%.

Calculation ladder

Use Access2Markets and Your Europe's customs guidance to identify the product, origin, destination and customs-procedure questions. Then confirm the VAT treatment with the relevant national authority or adviser.

6. Common order-of-calculation mistakes

Applying duty to the wrong value

The supplier invoice may exclude freight, insurance or other adjustments that belong in the customs valuation. It may also include charges that should be considered separately. Start from the relevant rules and document the working value.

Choosing the code after choosing the rate

A buyer who starts with “this product should be 4%” can unconsciously select a code that fits the desired result. Start with the product facts, compare candidate headings and record the rationale. Escalate when the difference is material.

Treating the supplier's HS code as final

The first six digits are shared internationally in the HS structure, but destination-specific extensions and measures matter. Check the importing territory's tool.

Adding import VAT to the wrong model

Cash import VAT, recoverable VAT and non-recoverable tax are not the same line. Keep the cash and economic views separate.

Forgetting the first destination

Some tax bases include incidental transport or handling costs to a first or known further destination. Check the applicable authority instead of assuming the warehouse cost is always outside the base.

Mixing Incoterm scope with customs value

An Incoterm helps identify who performs and pays for tasks. It does not decide the customs value or replace the declaration data. Reconcile the named place and freight quote, then ask how the costs are treated under the valuation rules.

Ignoring non-duty measures

The code can trigger licences, restrictions, quotas, trade remedies or document requirements. A duty-only estimate can therefore be commercially misleading even when the arithmetic is correct.

7. Avoid double counting in the landed-cost workbook

The landed-cost model and the customs calculation overlap, but they are not identical.

Use separate rows for:

• product price;
• freight and insurance;
• working customs value, as a reference calculation;
• duty;
• import VAT cash amount;
• recoverable import VAT;
• clearance and port charges;
• destination transport;
• expected loss; and
• non-recoverable tax.

If freight is used to build the customs value and also added to the landed-cost total, that can be correct because the first is a calculation base and the second is a real commercial cost. Label the rows clearly so the total does not add the same charge twice.

The DDP versus DAP guide is useful when the supplier says import taxes are included. Ask for the documentary trail and importer role instead of deleting the tax line from the model.

8. When to stop the estimate

Ask for specialist help or a formal authority decision when:

• two plausible commodity codes produce materially different duty or import conditions;
• the product contains multiple materials or functions that change classification;
• origin preference or a trade agreement is important to the margin;
• the transaction is between related parties or includes assists, royalties or unusual commissions;
• a DDP seller will not explain who is named on the declaration;
• the importer cannot explain the import VAT recovery or accounting treatment;
• the product is regulated, restricted, excisable or subject to a quota or trade remedy; or
• a broker's estimate conflicts with the official tariff tool.

The Amazon contribution-margin model should not be finalised until the landed-cost inputs are either verified or shown as a conservative range.

9. Calculation record template

10. The practical conclusion

Calculate in this order:

1. describe the exact goods;
2. establish a working customs value;
3. verify classification and origin;
4. identify the duty measure;
5. calculate duty under stated assumptions;
6. build the import VAT base;
7. calculate the cash tax and recovery view; and
8. carry the verified or ranged values into landed cost and margin.

Do not let a supplier invoice, remembered rate or online calculator hide an unresolved input. The quality of the result depends more on the evidence record than on the final multiplication.