How to split licence fees for customs value
Use a supported split to identify the dutiable part of a mixed licence payment. Separately shown payments for reproduction rights can be excluded. If missing information makes apportionment impossible, Method 1 cannot be used and you must try Method 2. Discuss the supplier paperwork with Cambridge China Bridge.
Identify what the payment covers
Start with the licence agreement, goods purchase contract and payment schedule. Mark each right, service and component covered by the payment. Royalties are includible when they relate to the imported goods and are a condition of sale. Our customs value guide covers the wider calculation; this guide addresses the split within a mixed licence payment.
Build a split someone else can check
HMRC allows apportionment between dutiable and non-dutiable elements where a payment partly covers imported goods, other ingredients or components added, or related services. Look for the basis in the agreement or ask the licensor. Request a written allocation explaining each element, its value and the calculation. Reconcile the allocated amounts to the total payment and identify the goods and shipments covered.
Use supporting material when the contract is vague
HMRC identifies negotiation correspondence, internal negotiation reports and discussions with negotiators as possible sources of an apportionment basis. Ask for the material behind the proposed allocation rather than accepting a label such as ‘support services’. Keep the calculation alongside the relevant contract clauses and invoices, and ask your customs agent to review the treatment before using it.
Identify reproduction rights separately
Payments for the right to reproduce imported goods can be excluded if shown separately from the price paid or payable for the goods. Ask the licensor to identify the precise reproduction right and its charge, and check that the paperwork distinguishes that charge from the goods price. Do not treat a generic ‘licence fee’ description as enough to establish this exclusion.
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Recognise when the information is insufficient
If missing relevant information makes apportionment impossible, HMRC says you cannot use Method 1 and must try Method 2. Flag the unresolved allocation to your customs agent rather than supplying a guessed split. Prepare the agreement, licensor’s explanation, invoices and workings together with the shipment documents covered in our customs clearance documents guide.
Frequently asked questions
Can I split a licence fee covering goods and services?
Yes, where the payment partly covers imported goods and other components or related services. Find a supported basis in the agreement or ask the licensor.
What if my licence agreement gives no breakdown?
Ask the licensor for a written allocation and its calculation. Gather negotiation correspondence and reports that could explain the split.
Are reproduction rights excluded from customs value?
Payments for the right to reproduce imported goods can be excluded when shown separately from the price paid or payable for the goods.
Can I use Method 1 if I cannot split the licence fee?
If apportionment is impossible because relevant information is missing, you cannot use Method 1. HMRC says you must try Method 2.