VAT on imports from China to the UK, and how to reclaim it
How import VAT is calculated on goods from China, how postponed VAT accounting changes your cash flow, and the DDP arrangement that can leave you unable to reclaim it at all.
Import VAT is a cash flow question, not usually a cost
If you are VAT registered and the goods are for your business, import VAT is normally recoverable. That makes it fundamentally different from duty, which is a permanent cost you never get back.
So the questions that matter about import VAT are when you pay it, when you get it back, and what evidence you need to make the claim. Businesses that treat it as a cost price their products wrongly, and businesses that ignore the timing find a substantial sum leaving the bank weeks before it returns.
This guide covers VAT specifically. For duty rates, commodity codes and how the two are calculated together, see our guide to UK import duty and VAT, and for the DDP problem in full, see the guide to the DDP import VAT trap.
What import VAT is charged on
Not the invoice value. Import VAT is charged on the customs value, plus any taxes, duties and charges payable because of the importation other than VAT itself, plus incidental costs such as transport and insurance to the first destination in the UK. If a further UK destination is already known when the goods are imported, the cost of getting them there counts too.
That has two consequences people miss. First, VAT is charged on top of duty rather than alongside it, so a high duty rate increases the VAT as well, and the same is true of anti-dumping duty and excise where they apply. Second, the customs value is itself larger than the invoice, because it includes freight and insurance to the UK border and things you supplied to the factory such as tooling.
So a calculation based on the invoice alone will understate what leaves your bank. Build the customs value properly first, then apply duty, then apply VAT to the total.
Postponed VAT accounting, which most importers should be using
Postponed VAT accounting lets a VAT registered business declare and recover import VAT on the same VAT return, instead of paying it at the border and reclaiming it later.
It needs no approval and no application. You are eligible if you are VAT registered in the UK, the goods are for use in your business, and you have the right to dispose of them, normally as the owner. What you must do is include your VAT registration number on the import declaration and tell whoever makes the entry that you are using it, because they will not assume it.
It does not reduce the tax. It removes the gap during which a substantial sum sits with HMRC rather than in your business, and on a container that is often the single largest cash flow improvement available to a small importer. It is free to arrange and routinely left unused.
Evidence, and why it decides whether you can reclaim
To recover import VAT you need the right evidence in your own name. If you use postponed VAT accounting, you account for it on your return using the monthly statement available to you. If import VAT is paid at the border, the import VAT certificate is the document that supports the claim.
The right to recover follows ownership of the goods, and the evidence follows the declaration, so both have to line up. An import where somebody else is shown as the importer, or where the certificate is in another party's name, is where reclaim problems begin.
So check what is actually being declared and in whose name, rather than assuming. This is a five-minute check that prevents a twenty per cent problem.
The DDP arrangement that can cost you the whole amount
This is the trap worth understanding before you accept a delivered price from a Chinese supplier. Under DDP the seller normally arranges the import and pays the duty and import VAT, often through their own agent.
Because entitlement to recover import VAT follows ownership, and under DDP the seller frequently still owns the goods at the point of import, the party who paid the VAT may not be the party entitled to reclaim it, and you may have no valid certificate in your own name to support a claim. A forwarder or agent cannot simply reclaim it either.
The practical result is a business paying twenty per cent it did not budget for and cannot recover, on a shipment that looked cheaper than the alternatives. Before accepting DDP, ask whose EORI number will be used, who will be shown as importer, and whether you will receive an import VAT certificate in your own name. If the answers are vague, the usual fix is not to abandon a delivered term altogether but to buy on DAP instead: the supplier still delivers to you, and you are the importer of record with the entry, the evidence and the recovery right in your own name.
Practical points that come up
Currency: the conversion used on the declaration is the rate published for the month, not your bank's rate on the day and not the rate you actually paid, so the VAT figure can differ from the one you modelled.
Low value consignments and goods sold through online marketplaces have their own rules, so if you sell that way, check how VAT is accounted for before assuming the import position applies.
Records: keep the documents supporting your customs value for at least four years, along with the evidence for every reclaim you make. A reclaim you cannot evidence is a reclaim you may have to repay.
Frequently asked questions
How much VAT do I pay importing from China?
Import VAT is charged on the customs value, plus the taxes and duties payable because of the importation other than VAT, plus incidental costs to the first UK destination, at the rate applicable to your goods. Note it is charged on top of duty and anti-dumping duty, and the customs value is itself larger than the invoice because it includes freight and insurance to the border.
Can I reclaim import VAT?
Normally yes, if you are VAT registered and the goods are for your business. You need the right evidence in your own name: the postponed VAT accounting statement if you use it, or the import VAT certificate if the VAT was paid at the border.
Why might I be unable to reclaim import VAT on a DDP shipment?
Because the right to recover follows ownership of the goods while the evidence follows the declaration, and under DDP the seller often still owns them at import. The party who paid the VAT may not be the party entitled to reclaim, and you may have no certificate in your own name. Ask whose EORI will be used and whether you will receive a certificate, and consider buying on DAP so that you are the importer of record.
Is import VAT the same as duty?
No. Duty is a permanent cost that cannot be recovered. Import VAT is normally recoverable by a VAT registered business, which makes it a cash flow matter rather than a cost, provided you hold the right evidence.
Which exchange rate applies?
The rate published for the month, which the declaration must use. It is not your bank's rate on the day and not the rate you paid the supplier, so the VAT and duty actually payable can differ from your model.