When goods arrive in the UK from abroad, two charges are usually raised at the border: customs duty and import VAT. They look alike on a courier invoice, but they are treated very differently. Import VAT is normally recoverable for a VAT-registered business. Customs duty is not recoverable: it is part of the cost of getting the goods into the business.
Where customs duty belongs
Under FRS 102 the cost of inventory includes the purchase price plus import duties and other taxes that are not recoverable, transport and handling. So customs duty follows the goods:
- Goods for resale or raw materials: add duty to the cost of stock (or to purchases if you use periodic stock), so gross margin reflects the true landed cost.
- Equipment imported as a fixed asset: add duty to the asset’s cost and depreciate it with the asset.
- Consumables used in the business: expense duty with the item.
A separate nominal code such as “Import duty” within cost of sales is useful when duty is material, because it shows how much trade tariffs cost the business and makes the year-end stock valuation easier to check.
Posting a courier’s import invoice
A retailer imports a consignment worth £4,000. The courier pays the charges at the border and invoices the retailer for £280 duty, £856 import VAT and a £15 disbursement fee plus £3 VAT.
| Account | Debit | Credit |
|---|---|---|
| Purchases – import duty | £280 | |
| VAT on imports (input VAT) | £856 | |
| Carriage and clearance fees | £15 | |
| Input VAT | £3 | |
| Trade creditors – courier | £1,154 |
Import VAT can only be reclaimed with the C79 certificate (or, if the business uses postponed VAT accounting, the monthly postponed import VAT statement). A courier invoice alone is not evidence for reclaiming import VAT. The duty is still a cost even though no VAT invoice applies to it.
Using a duty deferment account
Regular importers often pay through a duty deferment account, a direct debit with HMRC collected on the 15th of the month after import. Post the duty to the goods as above with the credit to a “Duty deferment control” liability, then clear that account when the direct debit leaves the bank. The monthly statement from the Customs Declaration Service is the reconciliation source.
Getting the amount right
Duty depends on the commodity code, the customs value and the origin of the goods. Preferential origin under a trade agreement can reduce duty to zero, but only if the origin rules are met and the evidence is held. Look up commodity codes and rates in the UK Trade Tariff rather than relying on a courier’s default classification.
Common mistakes
- Posting duty to the VAT account, which overstates the VAT reclaim.
- Treating the whole courier invoice as a delivery cost, which hides duty in overheads.
- Leaving duty out of stock valuation at the year end.
- Paying duty on returned goods without claiming relief that may be available.
For the VAT side of imports, see VAT on imports and exports, and for valuing goods on hand, inventory accounts.