Get your goods into the destination country:Understanding duties and taxes when exporting

What are duties and taxes?

Duties are a levy charged on goods entering a country. Collected by customs officials, they’re designed to protect local industries against foreign competition and to generate revenue.

Sales tax or VAT is a national charge in your export market, placed on most purchased products. In some countries, certain products can be exempt from VAT, such as basic food, medicine or educational products.

Generally, duties and taxes aren’t paid by exporters. Payment is usually made by the importing company, as they will be registered with the relevant import authorities.

However, duties and taxes will always impact on the cost of your goods to sellers and the price of your goods in the market. So, it’s crucial you’re clear on how much these charges are and that you’re on top of any paperwork your importer will need to ensure the correct levels of both are paid.

How duties and taxes are calculated

Customs officials use the information you provide on your commercial invoice and other supporting documents, such as statement of origin of goods, to calculate duties and taxes.

The amount to pay is based on:

• the product’s harmonised system (HS) code
• its value
• its country of origin/manufacture
• the effects of any trade agreements between the UK and the market you’re exporting to, which can lower or eliminate duties

Your product's HS code

This is also known as a commodity code or tariff code (or HTS code in the USA). It’s a number which clearly identifies your goods for duty, tax and regulatory purposes. HS means harmonised system – the same numbers are used for imports and export procedures globally. It can have up to 10 digits depending on the nature of the product – the first 6 are globally standardised.

It’s a hierarchical structure, starting at the general 2-digit level and proceeding down to a detailed product level.

For example:

• the HS code for "Beverages, spirits and vinegar" is 22
• the HS code for “Undenatured ethyl alcohol of an alcoholic strength by volume of less than 80% vol; spirits, liqueurs and other spirituous beverages”, a subgroup of 22, is 2208
• the HS code for "Gin," a subgroup of 2208, is 22 08 50
• the HS code for "Vodka," another subgroup of 2208, is 22 08 60

Your product's country of origin

The exporter needs to declare the origin of the goods and there are rules of origin which need to be followed whether the goods are manufactured or bought for reselling.

If you’re reselling goods, for example buying a product from a third party or UK warehouse to export, you may assume it was manufactured in the UK, but this may not always be the case. This may change the amount of duty or tax which has to be paid. You should get a statement on origin of the goods from your supplier.

Calculating your duty

To calculate the amount of duty that will be levied, start off by finding out the HS code of your product by using the UK Trade Tariff. The tariff will display the percentage of duty which applies to the code, and all other charges or regulations which are associated with it. It will also let you know about preferential rates that may apply due to trade agreements the UK has with your market.

Add together:

• the value of your goods
• the freight costs
• any other additional costs

Then multiply the total by the duty percentage.

Calculating your tax

Sales tax or VAT is calculated by adding together all your costs and the duty then multiplying it by the rate of VAT for your product type in the country you are exporting to.

Timing of payment

This will depend on the nature of the shipment. Consignments can be direct exports, part of a production process (outward processing) or going out on a temporary export basis.

An importer may have the option to pay immediately on arrival or defer payment, subject to local customs approval.

If the goods are a temporary export, for example, exhibition goods or commercial samples, then temporary export procedures can be applied. Check HMRC guidelines.