How to Import From China to the UK

Learn how to calculate all import duties into the UK. 

How to import from China to the UK.

How To Calculate Import Duties And VAT Using The UK Trade Tariff System And Know Your Duties And VAT.

Today we will be walking through one of  the more mundane topics of conversation about How to import from China to the UK, and that’s the calculations of VAT and duty into the UK. This is the ultimate guide to learn when importing from China to the UK and how to calculate the import duties and VAT when doing so.  

One of the first things I remember when setting up Merchsprout and starting to import into the UK from China (and various companies in the past) was how hard it all seemed when thinking about anything to do with companies house, VAT, HMRC, shipping and import.

I scoured the internet and found no accurate, tangible information on how to import stock from China to the UK, talking about the individual steps to take and how to do each one.

There was always loads of information about how to find products and source (not always accurately). 

Still, there seemed to be very little information around the functions of importing and shipping. Leading to me creating this video on How to import from China to the UK:

 

Why do we want to know about customs, duty and VAT Charges?

Let’s take a step backwards, though. Why do we want to know about importing, duty and VAT calculations?

To build a profitable business, you need to ensure that you save money and guarantee that you are as efficient as possible at every opportunity.

In the modern-day age, competition in places like Amazon is so high and margins so tight; it’s the only way to ensure that you can stay profitable. One way of ensuring you are doing this is to confirm that you understand in granular detail each step of a process your components go through to get to you, or your final buyer, in a reasonable time scale and with quality that is to your requirements.

And that’s why we here at Merchsprout spend so much time drilling into the details around topics like defining requirements and ensuring that suppliers have understood with full granularity of what you expect from them.

We have a treasure trove of information on points just like this and more on our youtube channel and our website teaching you How to import from China to the UK, how to ensure you get the stock from suppliers that you want and how to choose those suppliers. 

So let’s say you have found a good product in China, you have had it manufactured, and they have supplied it FOB to your ship.

 

Different Incoterms Explained

So the first point to clear up here is Incoterms. So, there are many shipping terms here and depending upon how much you are willing to do yourself and ultimately how much you want to spend will change your decisions here.

To keep things simple, I will just run through a couple of options here widely used by Chinese (and ultimately, most suppliers).

At the bottom end, we have Ex-Works, also known as the factory price. Ultimately, the factory produces the components and drops them outside their door; leading you to arrange everything from shipping to the port, customs clearance, and loading the ship, shipping to your country and importing including paying any duty and VAT payments.

Ultimately, this entire supply chain is controlled and organised by you. Is it a viable option, for the first-time importer, without a team in China? No, it’s not something that I would advise doing; however, if you have conducted a few sales in the past with a few suppliers, it may become a viable option. And even more so if you have access to a trustworthy company in China that can buy stock and export on your behalf.

What makes me say this, well, it opens up a much larger manufacturing base to you; you no longer have to only deal with the factories that have an export licence.

 

FOB- Free On Board

The next term of shipping, and by far the most common, is FOB.

FOB stands for Free on Board; it always makes me smile a little bit. Free makes you sound like you are getting something for free. But as with everything in the world, nothing is free.

Free onboard means that the supplier will make the products for you, load the container, use their export licence to conduct customs clearance on the items and load the items onto the boat. At which point, you take ownership of the components and the responsibility of shipping and insurance and subsequently import, duty and VAT.

FOB is the most frequently offered by suppliers, and its what we will be using for our assumptions in the latter part of this explanation.9-

DDP- Delivery duty paid

But there is one more shipping option that we will be just having a brief comment on, and that’s DDP. This stands for delivery duty paid. It’s the simplest but most expensive way to ship components from your supplier to you and usually only implemented when shipping smaller items such as samples or smaller batches of parts. The parts are shipped directly to you by the manufacturer shipping is included, as is duty, usually insurance, and VAT.

However, have a look at this video to see why we don’t always advise using DDP when shipping larger batches of parts. 

 

For the sake of this explanation, and because it’s the most common and the most efficient way, we will be discussing FOB shipping terms.

So you have had your parts made, now what?

When the production of components is complete, your supplier should inform you to arrange for an inspection agency to look at the pieces and get their approval. Then request that the inspection agent monitor the container’s loading and release the 70%/50% of the funds that you were withholding (or your inspection team/ third party) were withholding.

Then, the components will be shipped to the port of exit by the shipping company arranged by the supplier. The supplier’s shipping company will arrange the clearance through customs and discuss the shipment details with your freight forwarding agent.

If you need assistance with a freight forwarding agent, please drop me a message or leave a comment and I can advise you on any shipping agents that I use and any queries that you may have.

Usually, the supplier has provided an invoice with an HS code (harmonised standard). Make a note of this code as it is what you will use to calculate your duty clearance costs.

As you can see, it’s not hard, as explained, to get stock out of a manufacturing facility onto a boat and out to sea. It’s one of the easier things in the entire supply chain.

Important things to remeber before exporting from china and your supplier

  1. Ensure that your stock is correct, signed off and inspected before allowing the parts to leave the facility. Once those parts have left the facility and in the container, no rectifications can be born by the supplier.
  2. Ensure that you have someone monitoring the loading of the container if it is a high-value shipment.
  3. Ensure that you have discussed insurance terms with the supplier and your freight forwarder. Understand who owns what and at which point of the journey.

OK, we have our container on a boat; the freight forwarder has informed us of the landing date. The ship is chugging along through the straights of Singapore towards the Suez canal (or round the horn… who knows), and you are sat at home twiddling your thumbs awaiting your delivery.

However, before the ship lands in the UK, there are a few items that you want to be ensuring you have conducted.

Understanding Import Charges

Usually, your shipping agent will pay these for you and then charge you a percentage of the fee. But it’s good to know how to calculate the rate of duty and applicable VAT.

Import Duty

So the first items we want to calculate is our duty to be paid.

To do this, we take the HS code that we gained from the exporting and invoice documents. Then we head over to the UK trade tariff lookup tables

We add our HS code number into the search bar and click search. It may take you to exactly your article or you may have to go and do a bit of digging. Either way, after finding your exact code or description, you should be given two useful percentages that we need to make a note of.

 

UK Trade Tarrif look up
How to import to the UK from China, UK trade look up table

As an example, I am going to use a toilet seat. So in the trade tariff database, we find that a Toilet seat- also known as a lavatory seat, has an HS code of 3922200000 and an import duty of 6% and a VAT tariff of 20%.

We use these two numbers in different ways to calculate our total landed cost.

The first thing we need to calculate is our duty. Our duty is taken from above our 6% and calculated against our CIF value.

UK trade Tarrif for Toilet seat from China
UK trade tarrif and duty for toilet seat

What is CIF then: it stands for cost insurance and freight. It’s the cost of our products, the cost of insurance and the cost of freight.

CIF Explained.

So let’s take a toilet seat as an example.

Let’s say as an easy-to calculate example we had a stock value of £5,000 in stock, our freight of these toilet seats cost £3,000 and insurance £100 In total we would be looking at a duty of:

£5000+£3000+£100= £8100

£8100 x 0.06= £486

So there we have our duty rate.

£486 for our duties on our shipment of toilet seats.

Calculating VAT

Next, we need to calculate our VAT. To calculate our VAT rate, we need to find out our total value. To calculate the total value we do:

Value of goods + Shipping+ Insurance+ Duties.

So from our toilet seat example, we will have the following:

£5000 + £3000 + £100 + £486= £8586

We have a total value of £8,586.

We need to calculate 20% of this value to give us our VAT rate, remember we got our VAT rate from the Trade Tariff calculator.

So we do £8586 x 0.2 = £1,717.20

Add them together:

£8586 + 1717.20= £10,303.20

Reducing some of the fee's you have to pay

So after we have calculated our landed costs, we then have to pay the fees. Now, here it has to be said that our shipping agent will usually pay this fee on our behalf and then bill us for it unless you have chosen otherwise. They will, of course, charge us for the privilege. It’s usually around 5% of the fees. So bear that in mind when calculating your landing costs.

Before the items have landed before the agent has shipped them to our warehouse or chosen place. We can look at how to reduce some of these fees.

OK, so, if you have a VAT-registered company, we can apply for what is known as an EORI number. EORI stands for Economic Operators Registration and Identification number. And we can assign our delivery against this number, which means that when the components have been imported, and VAT paid, we can claim them back. Just like you would on any other VAT purchase for your company.

Ensure you provide your shipping agent with the EORI before import, though, as this value of VAT is assigned to your number, you will be able to claim it back at a later date.

Landing

So all being well, you have had your delivery sent to your warehouse, its been offloaded and you can now start to reap the rewards of those hard earned sleepless nights.

Its honestly not as hard as it seems to start out and entirely within your grasp to press ahead and start that new online business.

So grab the bull by the horns and start!

If you want help importing your stock from China, or to discuss anything discussed in this page, dont hesitate to get in touch with us. We can import your stock into the UK on your behalf, conduct supplier due dilligence, testing and all applicable certification testing. And the best bit is that you only have to pay us in the UK. No paying suppliers, no splitting of deposists, just a single, easy to understand invoice with your stock delivered straight to you or your Amazon or own warehouse. 

Drop us a note to find out how. 

 

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