In a globalised world we now more than ever shop online. At the click of button you can now purchase those pair of trainers or top from Hong Kong, Australia or USA at excellnt prices particularly when you convert the pound sterling (£) into local money.
Though sometimes purchasing from abroad is not as cheap as you expect it to be - many don't realise the amount of charges that can potentially be applied to that purchase.
This guide is to shed some light on purchasing from outside the EU that may be of use to you and will help you to calculate ALL your costs associated with that special purchase.
THE BASICS - HMRC POLICY ON GIFTS
Currently as a basic guide any items imported into the UK outside the EU with the value of £20.00 that is not classed a "Gift" But as Merchandise, Commercial Purchase or Other means you will be charged VAT and a handling fee of £8.00 by Parcel Force.
It is important to note that even if your item is worth under £20.00 and is classed as Commercial Purchase, Merchandise or Other this item can also attract VAT as well. It is at the pure descretion of HMRC that no VAT will be charged if the item is Merchandise or a Commercial Purchase under the value of £20.00
Items within the value of £20.00 and marked as a "Gift" will not attract VAT or handling charge of £8.00
An item over the value of £20.00 and marked as a "Gift" can at the descretion of HMRC not be charged VAT. Many times if no VAT charged then most likely you will not be charged a handling fee by Parcel Force - I have received items to the value of £40.00 and no VAT or handling charges were applied - however this does not mean I will not be charged next time!
WHICH COURIER COMPANY IS MORE COST EFFECTIVE WHEN IMPORTING?
It is important to note that importing into the UK via Parcel Force can be cheaper than importing with UPS/Fedex/DHL: especially on large costly items.
A word of warning be careful when using a middle man when importing your items like Parcel2Go and Interparcel. Because they work out a basic charge to import the item which is usually more expensive than using the company directly - particularly as you will then still have to pay VAT , a handling fee and import duties, particularly if it is a heavy item.
Parcel Force does not charge Import Duties & Taxes and has a set handling fee of either £8.00 or £12.00 dependent on the size /weight of the item which can work out cheaper than Fedex , UPS, DHL for items under 150lbs in weight
Though for large heavy items of 150lbs or more - it may be more economical to import via a courier company because if 7 parcels are sent by the shipper with 7 seperate tracking numbers you will be charged £8.00 x 7 and VAT x 7. With large commercial imports that dont fill half an container, of 150lbs in weight and can be air freighted then a courier is your best bet as the VAT will be charged on the WHOLE shipment and your defferment fee (charge for paying the VAT upfront for you so your items can clear customs) will be charged ONCE.
Another good thing with Parcel Force is your VAT is determined by HMRC and then Parcel Force tacks on their handling fee - Courier Companies like Fedex, UPS and DHL have been know to add their deferrment fee and calculate VAT - thus increasing the VAT you would need to pay on item
HOW TO WORK OUT YOUR VAT
SO LETS TAKE A REAL EXAMPLE No 1.
Purchase an item on the internet costing $100.00 USD + $35.00 USD shipping your costs
Initial Purchase on the internet - $135.00 converstion rate $1.56 = £86.54
Your card company charges you a fee for foreign transactions = £ 1.50 (sometimes £1.25)
Your item arrives in the UK Royal Mail/Parcel Force will process your item
VAT will be charged on the item this is because your item is over the value of £20.00 and it is not a "Gift". HMRC policy is if you had purchased the item in the UK you would have had to pay VAT therefore to encourage UK purchases and to not lose any potential VAT you will be charged VAT.
To work out how much VAT you will pay HMRC works out the value of the your item. HMRC provides online an Exchange Rate list against world currencies that is usually set at the beginning of the calendar month - THIS CAN DIFFER FROM THE ACUTAL EXCHANGE RATE THAT MAY BE ADVERTISED AT BANKS/ONLINE EXCHANGE RATES - SO CHECK THE HMRC WEBSITE FOR THEIR EXCHANGE RATES FOR IMPORTS
Currently HMRC Exchange rate for October is set at $1.56 = £1.00 this rate is used to determine the value of your goods in Pounds Sterling and then the VAT rate at the time is caculated on the value of the item.
Calculation of purchase above as follows:
$135.00 cost of items / $1.60 (HMRC set rate for that month) = £86.54 - this is the value of your item determined by HMRC - The acutal cost of the item AND the cost of postage are added and converted by the HMRC rate
£17.31 - 20% VAT on £86.54
if VAT is higher or lower then that rate will be applied - VAT is charged on the total purchase of your item - INCLUDING YOUR POSTAGE COSTS THIS IS VERY IMPORTANT TO BEAR IN MIND)
£8.00 fee from Parcelforce
This is what UPS/Fedex also call a defferment charge for paying VAT on your behalf to get it cleared from customs - please note Parcel Force is cheaper than Fedex and UPS - which can their charges range from £12.00 to £45.00 as they do not charge a set fee like Parcel Force.
The total cost of your tiem will then be = £113.35 or $176.826USD
Clearly this figure is more than your intial cost - therefore as a rule thumb whatver the cost of your item expect to pay around an extra 33% in charges - that way you dont get a shock when your item arrives in the UK.
Many complain or disagree with the Parcel Force of charge of £8.00 however to not pay the fee you would need to get an agent to clear the items, increasing your cost. In addition the after a period of time if your item is still awaiting customs clearance you will begin to be charged a storage fee DAILY. Therefore for personal purchases the £8.00 handling fee by Parcel Force elimantes ALOT of hassle.
If you are a regular importer with an EORI number (The EORI number is provided to you by HMRC if you regularly import - you need to apply for your EORI number -which enables you to interact with HMRC for customs clearance of your items and put you on a list of approved importers.
It is important to note that if your item is within the £20.00 range ALWAYS try to get it sent as a gift - because of course if you purchased merchandise worth £12 when converted from USD to £pound sterling - and its a commercial purchase you may well be hit with VAT and unfortnately £8.00 handling fee rendering the cost of the item unviable as you have actually paid more in charges than the actual cost of the item!
It is important to note for imports of 150lbs in weight and over via Air Freight or Ocean Freight the following charges will apply:
EXAMPLE 2 - IMPORTING FROM USA FOR MEDIUM SIZE SHIPMENT VIA AIR FREIGHT
I will show you how to work out your VAT and average Import Duties below - IT IS EXTREMELY IMPORTANT - if your importing for commercial purposes YOU MUST get the Harmonized Code (TARIC Code) included in the commercial invoice and on the shipping documents. The Harmonized Code or TARIC CODE classes your item in a particular category for import purposes so HMRC will no how to work out Import Duties. If your Harmonised Code /Taric Code is incorrect - this can result in you paying substantially higher Import Duties and in some cases 100% higher Import Duties particularly if the wrong Harmonised/Taric Code is used. - therefore it is imperative that the shipper puts the correct information. If the shipper is not the manufacturer then get them to liaise with the manufacturer to establish the correct Harmonised Code - for small businesses this is essential as many on tight budgets.
Items cost - $5,000
Shipping via Air Freight - $743 USD
Total Cost of Item Incl Shipping = $5743.00 USD
HMRC Exchange Rate for Oct 11 to determine Value of Goods - $5743 /1.56 = £3681.4
VAT on £3681.40 (currently at 20% in the UK in 2011) = £736.23
Import Duties (say at 9% on £2,500 part of import)* See notes below on this = £225.00
Courier Deferrment Fee = £38.00 (on a shipment this of around this value)
TOTAL COST OF IMPORT = £4,680.63 (please note this figure is guide only and should not be taken as fact)
It there for stands to reason if the unit cost of 15,000 items cost $5,000 USD the unit cost will be 0.33 USD per item or 0.21p if coverted to £pound sterling using HMRC Oct-11 Exchange rate Conversion,
BUT of course upon import your ACTUAL unit cost will be £0.31p based on all your various charges applied above (again this is guide) - depending on what your item is the import duties can be siginficantly more or significantly less) -
Therefore naturally before even working out any profit margains carefully research your import costs and duties within a reasonable sum - as a guide unless it is hazzardous materials - which can have high import duties expect to pay 1/3 of the cost of your item in import costs (including VAT)
It is VERY important to remember VAT is calculated on the cost of your item - based on commercial invoice AND the cost of shipping. If you have a shipping agent and can fufill the requirements of LUL (less than container load - most require a minimum of 1cub sq meter then Ocean Freight is cheaper and will result in less VAT being paid on your shipment - For Ocean Freight importing remember to be in contact with your shipping agent - because there is a DAILY charge for items being in port while awaiting customs clearance.
* IMPORT DUTY NOTES - Different rates of duties are charged on different parts of your shipment particularly if it is a multiple item shipment - some may have Import Duties and some parts of your shipment will not have an import Duty to Pay, there are also levels of Duties, Standard and Non-Standard - it all depends on your Harmonised Taric Codes supplied) = This is why it is EXTREMELY important to provide accurate harmonised codes so HMRC can work out correct charges for your shipment - the above working used a blanket harmonised rate - though for many shipments there will be various harmonised codes applied)
Please note that when using the Harmonised Code/Taric Code HMRC on your shipment - HMRC will look for a comparative item to determine the value. Therefore HMRC may sometimes class the value of your item above its commercial invoice price in above example it could be valued at £4,000 instead of £3,681.40 - the reason for this being is some importers get their shippers to reduce the value of the items (which is illegal) This may also be done by HMRC if there is a compartive product in the UK, HMRC will value your item at this comparative price to place the importer goods and UK manufactrers good at the same level - creating a level playing field for selling that item minimising any unfair advantage you may have against a UK Manufacturer of that product.
I hope the above calculations is useful to help you work out what the actual cost of your purchase will be if you are not purchasing in the UK or the EU.
Thefore before purchasing check your UK/EU prices Then if purchasing from US or any other country go the HMRC website and type in Rates of Exchange for Customs and VAT Purposes
check the specific month 10-2011 or in next month's case 11-2011 etc and you will see the HMRC Exchange rate and use the calculations above to work out what value of your items will be to work out what your VAT charge will be.
For Taric Codes again go the HMRC Website.
I hope the guide will be useful to you to aid your non-UK/EU purchases
THINGS TO KNOW WHEN BUYING ITEMS OUTSIDE THE UK & EU
Views 9 Likes Comments Comment
15 October 2011
Have something to share, create your own guide... Write a guide
Explore more guides