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Customs & Duties

VAT in domestic trade is straightforward enough. VAT in international trade is where many businesses get confused — and where errors can be costly. Import VAT, zero-rated exports, postponed VAT accounting, the £135 threshold — these concepts work differently from standard domestic VAT and it's important to understand how they interact.

This guide covers the key VAT rules for UK businesses importing and exporting goods, in plain English.

VAT on Exports: The Good News

Most exports of goods from the UK are zero-rated for VAT. This means you charge 0% VAT on the sale, but unlike an exempt supply, you can still recover input VAT on costs associated with the export. Zero-rating effectively means the goods leave the UK tax-free, which is the standard approach across most countries — VAT is a domestic consumption tax, so goods consumed overseas shouldn't bear UK VAT.

To apply the zero rate, you must meet two conditions: the goods must actually leave the UK, and you must hold evidence of export. HMRC specifies what constitutes acceptable evidence — typically export documentation such as the export declaration, shipping documents, or a customs-stamped invoice. If you cannot produce evidence within the required timeframe (usually three months), you may need to account for VAT at the standard rate.

Services are more complex — the zero rating rules for services depend on where the customer belongs and the nature of the service. This guide focuses on goods.

Import VAT: How It Works

When you import goods into the UK, import VAT is charged at the standard rate (currently 20% for most goods) on the customs value — that is, the cost of the goods plus insurance and freight (CIF), plus any customs duty payable. Import VAT is separate from and in addition to customs duty.

The key difference from customs duty: import VAT is usually reclaimable by VAT-registered businesses as input tax on their VAT return, whereas customs duty is a cost you cannot recover. This means that for most VAT-registered importers, import VAT is cash-flow neutral in the long run — but you still need to fund it upfront unless you use Postponed VAT Accounting.

Non-VAT-registered businesses (including those below the VAT registration threshold) cannot reclaim import VAT. For them, it is a genuine cost.

Postponed VAT Accounting (PVA)

Postponed VAT Accounting is one of the most useful post-Brexit changes for UK importers. Introduced on 1 January 2021, PVA allows VAT-registered businesses to account for import VAT on their VAT return rather than paying it at the border.

Without PVA, you would pay import VAT to HMRC at the point of import (often via your freight forwarder, who then invoices you), then reclaim it on your next VAT return — which could be a gap of weeks or months. With PVA, you simply account for it and reclaim it on the same VAT return, with no cash flow impact.

To use PVA, your customs agent must indicate it on the import declaration. You then download a monthly import VAT statement from your HMRC online account and include the figures on your VAT return. The practical implication: if you're a VAT-registered importer and you're not using PVA, you're unnecessarily funding HMRC's cash flow. Make sure your freight forwarder is applying PVA to all your import declarations.

The £135 Threshold for Low-Value Imports

For goods with a consignment value of £135 or less imported into the UK, the rules are different. Instead of import VAT being charged at the border, UK VAT must be collected at the point of sale by the seller. This applies whether the seller is a UK or overseas business.

If you're an overseas seller selling goods worth under £135 directly to UK consumers, you are responsible for registering for UK VAT and charging it on your sales, then remitting it to HMRC. The goods themselves enter the UK customs-free (no customs duty, no border import VAT), but UK VAT is due on the transaction.

For UK businesses buying goods from overseas suppliers, goods under £135 should arrive with UK VAT already accounted for by the supplier. If they haven't charged it, the liability may fall on you as the recipient.

Note: the £135 threshold applies to the total consignment value, not the value of individual items within a consignment.

VAT Registration Requirements for Overseas Sellers

Any overseas business selling goods into the UK — whether through a marketplace or directly — must register for UK VAT if their UK sales exceed the registration threshold, or if they sell goods under the £135 threshold to UK consumers (in which case there is no threshold — registration is required from the first sale).

This is why you may see overseas sellers charging UK VAT at 20% on your checkout even when you're buying from a non-UK business. They are required to do this under UK law.

Common VAT Mistakes in International Trade

Not holding evidence of export: Applying zero rate to an export without keeping proper documentation. If HMRC investigates and you can't prove the goods left the UK, you'll owe the VAT.

Not using PVA: Paying import VAT at the border and waiting to reclaim it, when PVA would eliminate the cash flow gap entirely.

Confusing customs duty with import VAT: Duty is a cost; import VAT (for registered businesses) is reclaimable. Conflating them leads to incorrect cost calculations.

Incorrectly treating EU sales: Post-Brexit, sales of goods to EU customers are exports from the UK. They are zero-rated (subject to export evidence), not exempt. The VAT treatment is different from the pre-Brexit distance selling rules.

Selling under the £135 threshold without charging UK VAT: If you're an overseas business selling to UK consumers, failing to charge and account for UK VAT on sub-£135 consignments is a compliance breach.