Shipping goods internationally is complicated enough. Add VAT and customs charges to the mix and it becomes a minefield.
Get it wrong and you face delays, unexpected costs, unhappy customers, and potential penalties from HMRC.
Get it right and your international operations run smoothly. Costs are predictable. Customers receive their goods on time.
This guide explains everything UK businesses need to know about VAT and customs charges when shipping goods internationally.
How Brexit Changed Everything
Before Brexit, shipping goods to EU countries was straightforward. No customs declarations. No import duties. VAT was handled through the destination country’s system.
Post-Brexit, every shipment to the EU requires customs paperwork. Duties may apply. VAT treatment changed completely.
For non-EU countries, the rules were always more complex. But Brexit meant UK businesses suddenly faced these complications on their biggest export market.
The fundamentals haven’t changed for countries outside the EU. But the volume of UK businesses dealing with customs procedures increased dramatically after January 2021.
Understanding VAT and customs charges matters more than ever.
Export VAT: Zero-Rating Explained
When you export goods from the UK, you typically charge 0% VAT.
This is called zero-rating. It means the supply is taxable for VAT purposes, but the rate is 0%.
Why does this matter? Because zero-rated supplies are still VAT supplies. You can reclaim input VAT on costs related to making zero-rated supplies.
If you sell £10,000 worth of goods to a customer in Germany, you charge them £10,000 with no VAT added. But you can still reclaim the VAT you paid on materials, packaging, and other business costs.
Conditions for zero-rating exports:
You must have evidence the goods left the UK. Commercial shipping documents showing export. Customs declarations. Proof of delivery outside the UK.
The customer must be outside the UK. Their delivery address must be in another country.
You must export the goods within three months of the supply. If goods don’t leave the UK within this timeframe, you may need to charge UK VAT.
Keep proper records. HMRC can request evidence that goods were genuinely exported. Without documentation, they may assess UK VAT on the sale.
Zero-rating applies to most physical goods. Services have different rules that depend on where the customer is based and the nature of the service.
Import VAT: What Happens When Goods Enter Another Country
When your goods arrive in the destination country, import VAT typically applies.
This isn’t your responsibility as the seller unless you’ve agreed to pay it. Usually the buyer pays import VAT when goods clear customs.
But customers don’t always understand this. They order £100 worth of goods. Then customs demands another £20 in VAT and handling fees before releasing the shipment.
Surprise charges lead to abandoned deliveries, negative reviews, and lost customers.
How different countries handle import VAT:
EU countries: Import VAT rates vary by country. Germany charges 19% on most goods. France charges 20%. Each country has its own rates and exemptions.
For goods valued under €150, sellers can register for the Import One Stop Shop (IOSS). This lets you collect VAT at the point of sale and remit it to tax authorities. Customers pay no additional charges when goods arrive.
Without IOSS registration, import VAT and customs handling fees apply at the border. Many UK businesses selling lower-value goods to the EU have registered for IOSS to improve customer experience.
Switzerland: Not in the EU. Has its own VAT system. Import VAT applies to most goods entering Switzerland. Rates differ from EU countries. For comprehensive guidance on shipping to Switzerland from UK, specialists like International Forwarding provide detailed support on customs, costs, and delivery times.
USA: No federal VAT or sales tax on imports. But state and local sales taxes may apply when goods are sold to end customers. Import duties can apply depending on the product.
Other countries: Each has its own VAT or sales tax system. Rates, thresholds, and collection methods vary widely.
As the seller, you need to understand the destination country’s rules. Either factor import VAT into your pricing, register to collect it yourself, or clearly communicate to customers that additional charges will apply at delivery.
Customs Duties: When They Apply and How Much
Customs duties are separate from VAT. They’re taxes on imports based on the type and value of goods.
Whether duties apply depends on the trade agreement between the UK and destination country.
UK-EU Trade and Cooperation Agreement:
Goods that originate in the UK or EU can move duty-free. But “originate” has specific rules. Your product must meet origin requirements to qualify.
Simply being manufactured in the UK isn’t always enough. If you import materials from outside the UK/EU, process them, and re-export, you need to check if the finished product qualifies for preferential origin.
Products that don’t meet origin rules face customs duties. Rates vary by product type and are based on the Harmonised System (HS) code.
Countries without trade agreements:
Standard WTO tariff rates apply. These can be substantial. 10%, 20%, or more on certain products.
Check the destination country’s tariff schedule for your specific products. The wrong assumption about duty rates can destroy your profit margins.
Declaring the correct HS code:
Every product has an HS code. This six-digit (or longer) code determines the duty rate.
Getting it wrong means paying incorrect duties. It can also lead to customs delays or penalties.
Invest time in identifying the correct HS codes for your products. Check with customs authorities or freight forwarders if uncertain.
Delivery Duty Paid vs Delivery Duty Unpaid
When shipping internationally, you choose who pays customs charges.
DDP (Delivered Duty Paid): You pay all customs duties and import VAT. The customer receives the goods with no additional charges.
Advantages: Better customer experience. No surprise fees. Higher conversion rates. Fewer abandoned deliveries.
Disadvantages: You need to understand and pay foreign taxes. More complex. Higher upfront costs.
DDU or DAP (Delivered at Place): The customer pays customs duties and imports VAT when goods arrive.
Advantages: Simpler for you. Lower upfront costs. The customer handles customs clearance.
Disadvantages: Customers often don’t expect additional charges. Can lead to refused deliveries. Negative reviews. Lost sales.
For B2B sales, DDU is common. Business customers understand customs procedures and expect to handle import charges.
For B2C sales, DDP increasingly becomes the standard. Consumer expectations have shifted. Retailers like Amazon offer DDP pricing. Customers expect the checkout price to be the final price.
If you choose DDU for consumer sales, communicate clearly. Display expected customs charges prominently. Explain the process. Manage expectations.
EORI Numbers and Customs Declarations
To import or export goods, you need an EORI number.
EORI stands for Economic Operators Registration and Identification. It’s a unique identifier used in customs procedures.
UK businesses shipping internationally need a UK EORI number. Register through HMRC’s website. It’s free and usually processed within a few days.
If you’re registering for VAT schemes in EU countries or importing into the EU regularly, you may also need an EU EORI number.
Every international shipment requires a customs declaration. This document tells customs authorities what’s in the shipment, its value, its origin, and its HS code.
For shipments handled by courier companies or freight forwarders, they usually complete customs declarations on your behalf. You provide the necessary information, and they file the paperwork.
Accuracy matters. Incorrect declarations cause delays. They can also lead to penalties if customs authorities believe you’re trying to evade duties or taxes.
Low-Value Shipment Rules
Many countries have simplified procedures for low-value shipments.
UK imports:
Goods valued at £135 or less: No customs duty applies. VAT is charged at the point of sale by the overseas seller if they’re registered for UK VAT. Otherwise, import VAT applies.
Goods over £135: Standard customs procedures apply. Duty may apply depending on the goods. Import VAT applies.
EU imports:
Goods under €150: Can use IOSS to collect VAT at point of sale. Customs duties don’t apply under this threshold.
Goods over €150: Standard import procedures. Customs duties and import VAT apply.
Other countries:
Thresholds vary. USA has a de minimis value of $800. Canada’s is CAD$20 for duties (though tax still applies). Australia’s threshold is AUD$1,000.
Research the specific thresholds for countries where you have significant sales volumes.
Low-value shipment rules can simplify operations significantly. But they require proper registration and compliance with destination country requirements.
Common Mistakes UK Businesses Make
Undervaluing goods on customs declarations: Tempting to reduce declared value to lower customs charges. But it’s illegal. Customs authorities catch undervaluation. Penalties can be severe. Shipments get seized.
Using incorrect HS codes: Leads to wrong duty rates. Can trigger customs inspections. May result in penalties.
Poor communication with customers: Not explaining that import charges will apply. Customers refuse delivery. You pay return shipping. Lost sale. Negative review.
Ignoring origin rules: Assuming your goods qualify for preferential duty rates without checking. When they don’t, unexpected duty bills appear.
Not keeping proper records: HMRC requires evidence that exports were zero-rated. Without documentation, they can assess UK VAT plus interest and penalties.
Inadequate product descriptions: Vague descriptions on customs forms cause delays. “Clothing” isn’t enough. Specify “men’s cotton t-shirts” or “women’s polyester dresses.”
Not registering for foreign VAT schemes: Continuing to let customers pay import VAT at delivery when registering for schemes like IOSS would improve customer experience and potentially increase sales.
Managing Currency and Exchange Rates
International shipping involves currency exchange.
Your prices might be in pounds. But duty rates and VAT calculations use local currency at the exchange rate on the day goods enter the country.
This creates some uncertainty in exact costs. But you can build in buffers.
If offering DDP pricing, calculate duties and VAT using slightly pessimistic exchange rates. This protects your margin if rates move unfavourably.
For B2B sales where customers handle import charges, exchange rate fluctuations are their problem. But significant movements can still affect your competitiveness.
Some businesses price in the destination currency to reduce customer uncertainty. This works well for major markets where you have significant sales.
Technology and Automation
Modern shipping platforms help manage international VAT and customs compliance.
E-commerce platforms like Shopify offer built-in tools to calculate duties and taxes at checkout. Integration with carriers automates customs documentation.
Specialist software like Zonos or Easyship focuses specifically on international shipping compliance. They calculate landed costs, handle customs paperwork, and integrate with your existing systems.
Freight forwarders provide technology platforms for their clients. Upload your shipping information, and their systems generate accurate customs declarations.
According to research from the International Chamber of Commerce, businesses that automate customs compliance reduce processing time by 50-70% and cut error rates significantly.
Automation isn’t just for large businesses. Many tools scale to small volumes and charge per-shipment fees rather than requiring large upfront investments.
Record Keeping Requirements
HMRC requires UK businesses to keep detailed records of international shipments.
You must retain:
- Commercial invoices
- Shipping documents
- Customs declarations
- Proof of export (tracking information, carrier confirmation)
- Evidence of VAT treatment applied
- Origin declarations and certificates
- Communication with customers regarding VAT and duties
Keep records for at least six years. HMRC can audit your VAT treatment of exports during this period.
Digital records are acceptable. Many businesses scan documents and store them in cloud-based systems for easy retrieval.
Good record keeping protects you during audits. It also helps resolve disputes with customers or carriers.
Working with Freight Forwarders and Customs Brokers
Most UK businesses use intermediaries to handle international shipping complexity.
Freight forwarders arrange transportation, handle customs paperwork, and manage logistics. They have relationships with carriers and understand country-specific requirements.
Customs brokers specialise in customs clearance. They ensure your shipments comply with regulations, complete declarations accurately, and resolve issues with customs authorities.
Many companies offer both services.
What to look for:
Experience with your destinations and product types. Someone shipping electronics to Australia needs different expertise than someone shipping food to the EU.
Technology integration. Can they connect with your e-commerce platform or ERP system?
Transparent pricing. Understand all fees. Some charge per shipment. Others have monthly minimums.
Proven track record. Ask for references from similar businesses.
Good communication. You need responsive support when shipments face issues.
The right intermediary saves you time, reduces errors, and often costs less than handling everything in-house due to their volume discounts with carriers.
Staying Compliant as Rules Change
International trade regulations evolve constantly.
VAT rates change. Duty rates get updated. New trade agreements create different rules. Countries modify low-value thresholds.
Staying compliant requires ongoing attention.
Subscribe to updates from HMRC. Follow trade associations relevant to your industry. Work with freight forwarders who monitor regulatory changes.
Build flexibility into your processes. Don’t hardcode assumptions about rates or procedures. When rules change, you need to adapt quickly.
Test periodically. Send sample shipments to key markets. Verify that duties and taxes are calculated correctly. Confirm that customers aren’t facing unexpected charges.
Making International VAT and Customs Work for Your Business
International shipping complexity shouldn’t prevent you from accessing global markets.
Understand the fundamentals. Know when you can zero-rate exports. Understand how import VAT works in your key markets. Calculate duties accurately.
Choose the right approach for your customers. DDP for consumers in most cases. DDU for B2B where appropriate.
Use technology to automate compliance. Leverage tools that calculate landed costs and generate accurate customs documents.
Work with experienced partners. Freight forwarders and customs brokers handle complexity so you can focus on your business.
Keep excellent records. Protect yourself during audits and resolve issues quickly.
Communicate clearly with customers. Explain costs. Set expectations. Deliver on promises.
International shipping has challenges. But thousands of UK businesses successfully ship globally every day. With proper understanding and the right processes, yours can too.
