VAT, customs and excise explained for UK importers

VAT, customs and excise in one import cost model

For UK importers, VAT, customs and excise are often discussed as if they were one border charge. They are not. Customs duty depends on classification, origin and customs value. Import VAT is normally charged at the VAT rate that would apply to an equivalent UK supply and is calculated on a wider import value, including duty and certain costs. Excise duty applies only to specified goods, such as alcohol, tobacco, vaping products and hydrocarbon oils, but it can change the declaration route, warehousing position and cash-flow plan.

A landed-cost file should therefore separate the charges in the right order: tariff duty first, excise where applicable, and VAT last. This guide explains the distinctions, the 2026 UK reference points, and the checks import teams should build into their customs workflow. You can also explore more in Customs.

What the three charges mean

Customs duty

Customs duty is the tariff charge imposed on imported goods when they enter free circulation. The rate depends on the commodity code, customs value, country of origin and any applicable preference, suspension, quota, relief or trade remedy. Two products that look similar can carry different duty rates if their materials, function or tariff classification differ.

For UK imports, the official Trade Tariff is the working reference for commodity codes, duty rates and related import measures. Importers should treat classification as master data, not as a last-minute broker decision. A wrong code can affect more than duty. It may also affect licensing, excise treatment, anti-dumping duty, VAT rate evidence and statistical reporting.

Import VAT

Import VAT is VAT charged when goods are imported. As of October 2026, official UK VAT rate guidance lists three main VAT rates: the standard rate of 20%, the reduced rate of 5% and the zero rate of 0%. Most goods and services are standard-rated unless a specific reduced or zero rating applies.

Import VAT is not calculated only on the supplier invoice price. HMRC guidance explains that the import VAT value starts with the customs value and then adds items such as incidental expenses up to the first destination in the UK, customs duty or levies, and excise duty or other import charges, excluding the VAT itself. The order matters. A change in customs value or excise liability can also change the VAT amount.

Excise duty

Excise duty is a tax on specified goods. In the UK, excise categories include alcohol, tobacco products, hydrocarbon oil, biofuels, Climate Change Levy-related categories and, from 1 October 2026, vaping products. Excise can apply whether the goods are imported or produced domestically. The duty point may depend on release for consumption, warehousing, movement rules and product-specific legislation.

Excise is where imprecise internal labels often create errors. A product may have customs duty, import VAT and excise duty at the same time. Imported alcohol, for example, may require a customs declaration, customs duty analysis, Alcohol Duty treatment and VAT calculation. If the goods move into an approved excise warehouse or another duty suspension arrangement, the timing of the excise payment may differ from a normal release to free circulation.

How the charges stack up at the border

A practical landed-cost calculation is built in layers. The exact figures depend on the product and declaration data, but the sequence is consistent.

This sequence explains why landed-cost spreadsheets can be wrong even when the supplier invoice is correct. If freight to a known UK destination is omitted, the VAT base may be understated. If excise is missed, both excise and VAT can be wrong. If preferential origin evidence is unavailable, customs duty may increase and the VAT base may increase with it.

Key UK reference points for 2026

Several current UK rules are especially relevant for import teams reviewing VAT, customs and excise processes in 2026.

• HM Revenue and Customs is the current tax and customs authority. The former HM Customs and Excise is now part of HMRC; HMRC was established in 2005, replacing Inland Revenue and Customs and Excise.

• The Customs Declaration Service is the practical platform for UK customs declarations. HMRC guidance has removed older CHIEF references from many import payment pages because UK import declarations are now handled through CDS except in limited permitted cases.

• Postponed VAT accounting allows UK VAT-registered businesses to account for import VAT on the VAT return instead of paying it upfront at import and reclaiming it later, subject to the normal rules. HMRC guidance states that no separate approval is needed to use it, but the import declaration must be completed correctly.

• If import VAT is paid rather than postponed, a C79 import VAT certificate is normally the evidence used to support input tax recovery. Teams should download and retain C79 certificates or postponed import VAT statements as part of their VAT records.

• For low-value parcels, the £135 threshold remains important in UK consumer and parcel rules. Non-excise goods at or below that value can be treated differently from goods above it, while excise goods can still attract duty regardless of value. Business importers should not rely on parcel thresholds without checking the exact transaction model.

• Northern Ireland can require separate analysis because goods may be assessed differently depending on whether they are at risk of entering the EU. This can affect duty treatment, VAT treatment and records.

For wider import process updates, see the Customs section on Dumbopus.

Excise goods need a different workflow

Excise goods should be identified before purchase, not when the shipment reaches the border. Excise may affect product descriptions, tax type codes, guarantees, warehousing, movement records, stamps, approvals and, in some cases, packaging requirements.

Alcohol is a clear example. HMRC guidance for importing alcoholic products states that alcohol becomes liable for UK Excise Duty when it arrives in the UK, although immediate payment may not be required if it is delivered into an approved excise warehouse, a customs warehouse with separate excise approval, or another permitted suspension arrangement. Importers also have to manage the related customs duty and VAT procedures.

Vaping products are a newer 2026 example. HMRC announced that Vaping Products Duty came into force on 1 October 2026. It applies to vaping liquids manufactured in or imported into the UK, unless they are held under duty suspension. The rate announced for the new duty is £2.20 per 10ml of vaping liquid. Products released for UK consumption on or after 1 October 2026 also fall within the Vaping Duty Stamps Scheme requirements unless a specific exception or suspension rule applies.

Changes of this kind show why excise cannot be treated as an annual rate lookup only. A trade team importing excise goods should maintain a product-by-product control file covering the commodity code, excise tax type code, duty rate basis, unit of measure, warehouse route, approval status, stamp requirement and supporting evidence. When rates change, the file should show the date used for the calculation.

Common mistakes that create tax and clearance risk

The first mistake is combining VAT, customs duty and excise into one generic line called import tax. That may be convenient for a purchase order, but it is not enough for audit or landed-cost control. Each charge has a different legal basis and evidence trail.

The second mistake is using the supplier invoice value as the VAT value without checking freight, insurance and UK destination costs. HMRC guidance on working out the VAT value requires importers to consider incidental expenses up to the first UK destination and, where known at import, transport to a further UK destination. See also: Compliance.

The third mistake is assuming that a zero customs duty rate means no VAT. Goods can be duty-free but still subject to import VAT. Equally, a reduced or zero VAT rate must be supported by the correct goods description and legal category; it is not created by a low tariff rate.

The fourth mistake is allowing a logistics provider to decide postponed VAT accounting without a written instruction. HMRC internal guidance notes that the decision to use postponed VAT accounting belongs to the importer, not the intermediary. Brokers can complete the declaration, but the importer still needs a clear instruction, review process and VAT statement reconciliation.

The fifth mistake is missing excise duty suspension requirements. If goods are meant to move under suspension, the customs declaration, excise records and warehouse route must align. A mismatch between the declared treatment and the physical movement can create payment exposure, delays or seizure risk.

A practical checklist for import teams

A disciplined import file does not need to be complicated, but it should answer the same questions every time. Use this checklist before confirming a landed cost or instructing a broker.

1. Confirm the importer of record and whether the business is UK VAT registered.

2. Classify the goods using the current tariff and record the reason for the commodity code.

3. Confirm origin and whether preference, quota, suspension or relief is being claimed.

4. Build the customs value from the commercial invoice and valuation adjustments.

5. Identify whether the goods are excisable, including alcohol, tobacco, vaping products, hydrocarbon oils or other listed categories.

6. Check whether excise duty is payable at import or suspended through an approved warehouse or movement procedure.

7. Calculate import VAT using the correct VAT rate and VAT value, including duty and eligible incidental costs.

8. Decide whether to use postponed VAT accounting, duty deferment, immediate payment or another approved payment route.

9. Reconcile CDS declarations, postponed import VAT statements, C79 certificates and broker invoices after clearance.

10. Keep evidence for classification, origin, valuation, excise treatment and VAT recovery in one auditable file.

For many businesses, the commercial value of this checklist is not limited to penalty prevention. It also improves pricing discipline. If sales teams quote delivered prices without separating duty, excise and VAT, they may understate costs, overstate margin or misquote customers in markets where the tax treatment changes.

Frequently asked questions

Is customs duty the same as import VAT?

No. Customs duty is a tariff charge based on classification, origin and customs value. Import VAT is VAT charged on imported goods and is normally calculated on a broader value that can include customs duty, excise duty and certain incidental expenses.

Can a shipment have VAT, customs duty and excise duty at the same time?

Yes. This is common for excise goods such as alcohol, tobacco, vaping products or hydrocarbon oils. The shipment may require customs duty analysis, excise duty treatment and import VAT calculation on the same declaration.

Does postponed VAT accounting remove import VAT?

No. Postponed VAT accounting changes the timing and reporting method. A UK VAT-registered importer accounts for import VAT on its VAT return and may recover it as input tax under the normal rules, but the VAT still has to be declared correctly.

Why does excise duty increase the VAT amount?

HMRC guidance states that the import VAT value includes customs duty and excise duty or other import charges, excluding the VAT itself. If excise duty is payable, it can therefore become part of the base on which import VAT is calculated.

What should importers check first when estimating landed cost?

Start with product classification and origin because they drive tariff duty and many control requirements. Then identify whether the goods are excisable, build the customs value, add duty and excise where applicable, and calculate VAT last.