Can I pay VAT only on profit from China imports?
No. Ordinary new goods imported from China do not qualify for the VAT margin scheme. If you are VAT registered, normal taxable UK resales use sales VAT on the full selling price, with eligible input VAT reclaimed separately. Accounting profit is a different calculation. Sourcing and quote checks are available from Cambridge China Bridge.
Check the goods and the purchase route
For ordinary new factory goods imported from China, do not base your pricing on a VAT margin scheme. HMRC says imported goods subject to VAT on their full value are normally ineligible. A supplier invoice without UK VAT does not make those goods eligible.
Give your VAT adviser the product description, condition, supplier invoice and proposed import route. Ask them to check HMRC’s eligibility definitions and import-specific guidance together. If the goods are described as art, antiques or collectors’ items, request a separate assessment before assuming the ordinary factory-goods treatment applies.
Confirm registration and import VAT recovery
Your VAT registration position is separate from margin-scheme eligibility. If you are not registered, confirm with HMRC how this affects charging VAT on your sales and whether import VAT should be included as a cost. Use importing when not VAT registered for the registration decision rather than treating low profit as a reason to ignore it.
For a registered business, import VAT recovery depends on entitlement and supporting evidence. Check ownership, the named importer and the documents you will receive. Our import VAT guide covers recovery and postponed accounting. Confirm with HMRC or your customs broker how postponed accounting affects when import VAT is accounted for; do not treat it as a way to turn sales VAT into a tax on profit.
Keep tax and profit in separate calculations
Under normal VAT rules, sales VAT is based on the full selling price, not the profit left after costs. The amount ultimately payable to HMRC usually reflects VAT charged less eligible VAT reclaimed. That offset is separate from calculating the profit on an order.
For your profit forecast, start with sales revenue excluding sales VAT, then deduct the cost of goods sold and relevant business expenses. Keep recoverable VAT outside that cost calculation and include unrecoverable VAT. Allocate freight, storage, selling fees and expected returns consistently; the landed-price guide helps organise the import costs.
| Entry | What it represents | Pricing treatment |
|---|---|---|
| Import VAT | VAT arising on the import | Separate recoverable VAT from unrecoverable cost |
| Sales VAT | VAT on the normal taxable resale | Separate it from sales revenue |
| Net VAT payable | VAT due after eligible recovery | Plan it in the tax cash-flow calculation |
| Accounting profit | Revenue less recognised costs and expenses | Assess whether the business earns enough |
A scheme margin is not accounting profit
For eligible transactions, a VAT margin scheme calculates VAT using the difference between the scheme buying price and selling price. This is a defined transaction margin, rather than the profit remaining after all your business expenses.
If an adviser confirms eligibility for specialist stock, ask them to check the scheme’s purchase-price calculation, sales invoices and stock records before you use it. Keep your commercial profit forecast alongside that calculation. A positive buying-to-selling difference can still leave an unprofitable order after operating costs.
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Set the selling price before agreeing the order
Confirm the product’s VAT rate and whether your proposed selling price includes VAT. For a standard-rated sale at 20%, divide the VAT-inclusive price by 1.2 to find revenue excluding VAT. Subtract that revenue from the inclusive price to identify sales VAT. Do not deduct 20% of the inclusive price.
Use that net revenue to test product costs, channel costs and the contribution you need. Follow working backwards to a factory price rather than adding a mark-up to the supplier invoice alone. Send Cambridge China Bridge your specification and cost worksheet so its own staff in China can clarify the factory quote’s scope; have your accountant confirm the VAT treatment.
Frequently asked questions
Can I pay VAT only on profit from new China imports?
No, ordinary new factory imports do not qualify for the margin scheme. A VAT-registered business accounts for normal taxable resales on the full selling price, with eligible input VAT recovered separately.
Does a Chinese invoice without VAT qualify for the margin scheme?
No. The invoice alone cannot establish eligibility. Ask your adviser to check the goods, purchase circumstances and import-specific rules together.
Am I paying VAT twice when I import and resell?
Import VAT and sales VAT are separate entries. Under normal accounting, eligible import VAT is reclaimed separately from sales VAT due. Unrecoverable import VAT remains a cost.
How do I remove VAT from my selling price?
For a VAT-inclusive price at the standard 20% rate, divide by 1.2 to find revenue excluding VAT. The difference is sales VAT. Use the net revenue for your profit forecast.