Import from China to UK – Logistics & Landed Costs All About Logistics & Calculating Landed Cost when Importing Products from China to the UK

Import from China to UK

As a large proportion of the readership of this blog comes from the UK & because I see a lot of questions related to logistics & accurately calculating landed costs of products from new importers who are trying to import from China to the UK, I will try to address these issues in this post. I will try & do a similar post for the US in the near future. You can also download the UK Landed Cost Calculator Template Spreadsheet here.

Ultimate Guide on Importing from China to UK with Downloadable Landed Cost Calculator Click To Tweet

The UK-EU Relationship

When trying to understand International Trade logistics to & from the UK, it is important to note that the UK is a part of the European Union (EU) & because the EU is a single economic territory, goods can move freely between EU Member states without any taxes or duties.

Therefore, all EU Countries also have the same tariff rates for different HS Codes for products imported from outside the European Union & no duties are charged when goods move from one EU country to another. However, the VAT Rates within the EU countries may vary from country to country.

Transit time to UK

When sending the goods by sea, most vessels have an estimated transit time of 28-35 days on the sea once the vessel takes off from the loading port. As vessels are rarely on time, it is good practice to keep 3-4 days for your contingency planning.

You can add another 3-7 days for customs clearance and domestic logistics in the UK, for your goods to hit your warehouse in case of an FCL shipment and 7-10 days in case of an LCL shipment.

Calculating Landed Cost of Goods

When you import from China to UK, there are three core components of the costs you need to be aware of when trying to calculate the landed Cost of your goods, i.e. the Tariff or Import duty, the Value Added Tax (VAT) & destination charges (Charged by the liner & forwarder for clearance & trucking).

There are three core components of costs you need to know in calculating landed cost Click To Tweet

It is also important to note, that the formula for calculating duties is a bit different in the UK, than say the US & I see a lot of new Amazon FBA sellers who have been selling in the US Market get confused by this when they first enter the UK market.

calculating tax

 

In the UK, the “customs duty” is charged on the CIF (Cost, Insurance & Freight) value of the goods as opposed to the US where it is charged on the FOB Value of goods.

The CIF value includes all costs required to get the goods to the destination port, such as cost of goods, insurance, freight, mold costs etc. However, it does not have to include fee paid to sourcing or quality control companies.

N.B: It is very important to note that it is the legal responsibility of the importer (& not the exporter) to ensure that they declare the correct customs value of their goods to customs in the UK.

Customs Duty/Tariff

Customs duties or Tariffs are charged on most products imported from outside the EU. When you import from China to UK, the customs duty you pay depends on the Tariff classification of your product.

 

customs

 

The tariff code also called HS Code, is a ten digit number that refers to the exact product you are importing and will show what Duty rate you are to pay on the goods. If you are not sure of the HS Code for your product, you can find this out by:

  • Asking your supplier to provide you with the correct HS Code
  • Asking your forwarding agent
  • Searching for your product on https://www.gov.uk/trade-tariff/ or
  • Calling the HMRC Tariff classification helpline on helpline on (0) 1702 366077

Update 27th Aug 2015: HMRC was kind enough to reach out to us to inform that from September 1, 2015 the Tariff Classification Helpline will be converting to an email only service. Guidance on how to use the new service is detailed in Customs Information Paper 27 (2015) which is available from the GOV.UK website.

For some products classification is a fairly straight forward process, for other products however, confusion can prevail as you may feel the product potentially falls under multiple tariff headings, in that case while the temptation is generally to use the tariff heading with the lower rate of duty, it is generally a good idea to use a combination of one of the first 3 strategies & then confirming the tariff classification with the customs helpline.

While in most cases, customs would levy the duty based on your classification, if the customs feel that your classification is incorrect they reserve the reclassify the product under the correct heading & levy the duty accordingly.

Finding out the Rate of Duty

Once you know the classification of your product, you can check its corresponding duty rate on the HMRC Website here.

Value Added Tax 

As discussed above, while the customs duty remains the same for most EU member countries, the VAT Rate varies and for the UK, VAT is charged at 20% at the time of writing this article.

Import Duty and Tax

 

Calculating VAT

When calculating VAT, I often see people using the wrong formula. VAT is chargeable on the total of CIF Value of the Goods + the customs duty. For example, if the value of your goods is $100,000 & the rate of duty is 10%, your VAT would be charged on $100,000 + (10% of $100,000). So the total VAT payable would be 20% of $1,10,000, i.e. $22,000.

Do you need a VAT Number to Import into the UK?

Another questions I see a lot is if you need to have a VAT Number to import into the UK. The short answer is that you do not need to register for a VAT number in the UK, if your turnover is less than £82,000 at the time of writing this post.

You do not need to register for a VAT number in the UK, if your turnover is less than £82,000 Click To Tweet

More Details here. However, it is important to note that you can only reclaim import VAT as input tax if you are VAT registered.

Also if you are a Non-UK based business, selling in the UK, the Threshold does not apply and you need to register from the onset.

Destination Charges

The third main component broadly refers to the “Destination Charges”. These include the following:

    • Forwarding Agent Charges: This is the agency fee charged by your forwarder for managing the customs clearing process & often for arranging domestic logistics, for allowing use of their deferment account, etc.
    • Domestic Trucking/Haulage Costs: Your forwarder will either use the Liner’s haulage or Merchant haulage (private haulage companies) depending on what is cheaper. In majority of the cases, liner haulage tends to be cheaper & more convenient as when using merchant haulage additional charges like the LOLO (Lift-on Lift-Off) are added to the trucking costs.
    • Destination Charges: These are charges charged by the shipping line & port for services like loading/unloading of container & handling of the container upon arrival. The biggest component of these is the THC (Terminal Handling Charge).

Other Costs

Other than the 3 key components of the destination costs, other costs may be payable. These include:

    • Special Requirements: If you have special requirements, for e.g. getting a Side Loader in order to unload your container, these would normally cost extra & it is important you let your forwarder know of any such requirements well in advance. Having a container in your backyard and not being able to unload it is a nightmare.
    • Anti-Dumping Duties: Anti-Dumping duties are charged by governments in order to protect domestic industries in cases where they feel that the exporting country has a specific advantage for a given product due to rebates given by the local government. A lot of governments around the world have imposed anti-dumping duties on various Chinese products & normally these duties are so high that it pretty much makes it impossible to import a given product from China profitably. Therefore, it is very important that you check in advance that no anti-dumping duties are applicable on your product.

Economic Operators Registration and Identification (EORI) Number

Whether you are VAT registered or not, you will need to apply for an EORI number form HMRC, which effectively allows you to import. EORI is a unique number assigned by a customs authority in one of the European Community countries.

Most importers requiring an individual customs clearance of goods, whether imported by sea or air, require an EORI Number. This is a one-time requirement for new importers as you will use the same EORI number for future shipments.

Note: If your shipment value is below £600, EORI number is NOT required.

How to Apply for an EORI Number?

You need to complete a fairly simple application form called the C220 if you are VAT Registered or C220A if you are not VAT Registered.

Download form C220 here. Download form C220A here.

It will ask you for your trading details and details of the shipment in question. The form can be emailed to the EORI team at HMRC at eori@hmrc.gsi.gov.uk and they will process and issue this within 48-72 hours (sometimes longer). I would recommend doing this a week or two before goods are due into the UK.

Once you have received your EORI number, you can then hand over the EORI details to your forwarding agent who will use it to clear your goods through customs upon their arrival. You can find more details about EORI on this link

Deferring Paying of Duties & VAT

It is possible to defer payment of duties & VAT by up to 30 days on average by getting a Deferment Account Number (DAN) with the HMRC in the UK. This not only helps speed up the clearance of your shipment, but is also handy in improving cash-flow.

For more details on how you can defer payment of duties & VAT, please check out this link from the HMRC.

Do you need a Forwarder/Shipping agent in the UK?

I often get a lot of questions along the lines of “Can I go to the port or airport and pick up the goods myself” instead of using a forwarder. The technical answer to this question is “Yes you can”, however this is not something I would recommend. There is quite a bit of paperwork involved in the clearance process and there are multiple parties involved.

Therefore, in most cases, it is simply not efficient or cost-effective to go through this process yourself and it is advisable to let forwarders/customs clearing agents manage the process.

Landing Cost Calculator – Free Download

To make things easier for you to “estimate” profit margins when exploring new product opportunities & get a realistic idea of Landed Costs, my friendly colleagues from the logistics team at IMEX Sourcing Services have made a “Landed Cost Estimator” that you can download from here. Hope you find it useful.

                       Click Here to Download UK Landed Cost Calculator Spreadsheet Template

I look forward to hearing about your experiences dealing with logistics issues when importing from China to UK as well as any questions or comments you may have on this subject in the comments section below and as always if you found value from this post, please subscribe to keep updated on the latest from this blog & spread the love by sharing this post. 

Ashish is the founder of IMEX Sourcing Services, a sourcing & QC company helping people importing from China manage their costs & risks as well as develop new products. Ashish also does consultancy work in the field of International Trade & Import Risk Management & loves to write during his free time.

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  • Hi Ash, for VAT registration you mention that “if you are a Non-UK based business, selling in the UK, the Threshold does not apply”. Is that still true of you live in another EU country?

  • Nick AR

    Hi, Great Article ..
    other than Alibaba & some other wholesale marketplace you can also find some local wholesale suppliers in your country ..
    finding a local supplier is more safe in terms money & time invested, communication and quality check of the products ..
    Good luck selling .. Cheers

  • It is great

  • Hi,

    I would never advice buying EXW from supplier and then letting them ship CIF or buying CIF, if its an LCL shipment, as this would almost always lead to massive surprise costs once goods are in the UK. If its a full container, then its a different ball game and you could consider buying CIF.

    Re: PSI’s, please see: http://www.imexsourcingservices.com/china-pre-shipment-inspection-service

    For logistics in the UK, I will email you.

    Good luck.

  • brandneu

    Hello Ash,

    I am looking to import some goods from my manufacturer in China, I got a exw quote from them, they also got me a quote from their freight forwarder from their warehouse to Felixstowe. Do you think it is wise to go with them on this?

    What must I ensure that the freight forwarder has in place in terms of documents and all?

    Can you recommend a pre-shippment inspection coy in china? and secondly some one to finish the process from Felixstowe to me.

    It my first time, and dont want financial surprises

    Thanks

  • Hi Steven,

    We can help with this for the UK, feel free to drop me an email with the details.

  • Steven

    Hi Ashish,
    I am going to be importing self balancing scooters into the UK and wanted to know if you had any recommendations for customs clearance agents?

    Thanks so much,
    Steven

  • Ashish Monga

    Hi Adamson,

    Glad you found value from the blog. Its funny that you mention Self-Balancing scooters or Hoverboards as they are called in the UK because this is what has been keeping me super busy recently. This is one of our major exports out of China too, so I can definitely help you with this.

    I will drop you an email with some recommendations for freight forwarders.

  • Adamson

    Your blog has really help me to find out good points. Please how can I get a trust worthy clearing agent in UK to help me clear my segways boards coming from China. The total value of the goods are less than £14000, do I need to register as a vat?

  • Ashish Monga

    Hi,

    Normally, the VAT and Duty is payable by the consignee, however, if you have a permanent account with courier companies like UPS, the shipper can opt to pay the Duty & VAT themselves.

    RE: VAT Issues, I believe an accountant would be the best person to answer these questions, but VAT Threshold is based on your “total sales turnover” as opposed to the value of each shipment being sent to your customers.

  • Nicety

    In eBay Ireland site (ebay.ie) if an item that I listed is sold, and if get this item drop shipped by my supplier directly to the buyer in Ireland, then who will be liable to pay VAT & Customs? Buyer or Me as an eBay seller?

    What VAT thresholds needs to be considered here?

    If I cross VAT threshold, should I register for VAT? and how much VAT should I pay to the government?

    Thanks.

  • Exporters India

    This is my first visit to your blog, your post made productive reading, thank you.

  • Ashish Monga

    Hi Zoe,

    If you use your own deferment account, as opposed to the forwarder’s, you can definitely avoid paying the forwarder’s deferment fee. To get details on how to register for your own deferment account, please refer to the link below from UK HMRC https://www.gov.uk/government/publications/notice-101-deferring-duty-vat-and-other-charges/notice-101-deferring-duty-vat-and-other-charges#deferment-approval

  • Zoe

    Hi Ash. Thank you for your sharing. About deferring Paying of Duties & VAT, our forwarder charges us £75 for using this service. However when I see on the HMRC website, it is said this service is free. Is it deserved for us to register a DAN to get this service by ourself? Would you please advise how to register for a deferment account number(DAN)? Thank you.

  • Ashish Monga

    Hi Abu,

    1. No, you only apply for EORI the 1st time. The customs will automatically get all other details for your future shipments as your forwarder will write your EORI number ihe the documentation to clear the goods. So this is just a one time process.

    2. Its normally not a good idea to register with a courier co. when you are starting out. In most cases you will get better courier rates from forwarding agents or your supplier, as they would have access to lower pricing due to their volumes.

    3. .Which part of the article are you referring to here?

    Ash

  • Jonathan Hernandez

    Hi Ash hope your well, thanks for your recent article in shipping answered a lot of questions I had.
    I had a few.more I was hoping you could kindly help me with.

    1. With regards to EORI number, I was looking at the form you recommended in your article(non vat payer) and it asked for the the nature and quantity of goods but I thought to myself that these values will differ every time so then I thought to myself do I have to raise a new EORI number everytime?

    2. Also I was looking to register with a courier company (TNT) bit they were asking for the EORI number and I wanted to start my first order with the value under £600

    3. BY value of goods, will this be price at fob or the total value after sales?

    Sorry for so many questions I hope you have time to answer thank you

    Abu Yaqoob

  • Ashish Monga

    Hi,

    While I am more familiar with import procedures than export from the EU, I believe the export number should be issued by the country where you are exporting from. A bit surprised by the 1000 EUR charge to get an EORI number, as normally there is no cost for this for Imports. Are you sure the EUR 1000 is not the limit for the value of goods above which you need an EORI?

  • Sjovar

    A question regarding getting an EORI number for non-EU members – I am based in Norway and I am planning to drop-ship; the supplier I have found is based in Spain (EU member).

    If I want to dropship for them via eBay or my own online store I can only ship to EU countries in Europe and If I want to ship to US, Canada etc I have to have a EORI number. I did research, since I will be drop shipping from a supplier who is in Spain, so I contacted the customs in Spain on how to obtain an EORI which would amount to 1,000 euros which is too expensive for me.

    My question is, if the EORI must be obtained from the country the supplier is based (Spain) or can it be other countries like Germany, Italy etc and for a cheaper price than 1,000 euros?

  • Ashish Monga

    Hi Taylor,

    If importing into the USA, you would still be paying the Duty. You will in most cases pay your forwarding agent who will then pay on your behalf. You would need a few additional documents if you are a “foreign importer of record” but its a relatively straight forward process, I will soon be doing a post on importing into the USA, for non US Based citizens which will go into more detail on this.

  • If I live in the UK and am importing products from China to the USA to be sold through Amazon FBA, who pays for customs taxes? Do I always pay customs taxes regardless what type of product being imported? Hoping for your insight on this matter. Thanks.

  • Ashish Monga

    Hi Winston,

    This would depend on the who the consignee of the shipment is. If you are the consignee, i.e. the importer of record, I believe you would be paying the duty & VAT & then charging that on to your customer. If they are the importer then they would be paying this directly to customs.

  • Winston

    I am looking to import some products on the medical niche from China on behalf of distribution companies in the UK. This is how the process works:
    1.Customer places order with me; then
    2.I place order to the Chinese factory via agent in China (to avoid supplier disclosure)
    3.Chinese factory makes the goods and I arrange the shipping for the customer to UK
    At the point when the goods arrive in the UK, should I be charging VAT and duty to the distributor or does the distributor pay this to customs to release the goods?

  • Ashish Monga

    Good point Alex. This is something I have covered extensively on this blog in the Chinese New Year category here: http://www.thesourcingblog.com/category/chinese-new-year/ . I also agree with your point about quality control and that’s where at the bare minimum a pre-shipment inspection is a must when importing from China.

  • Ashish Monga

    Glad you found it useful Eva.

  • Alex

    A very good analysis, the only caveat I would add is shipping time which is dependent on 2 factors: Seasonal Booking – Christmas (Sept to Nov) which can take capacity and Chinese New Year which is approximately 2 weeks in Feb and if not planned for can create Supply Chain interruption. Another consideration is Quality and lack there of, if you have a reject how are you going to recover?

  • Eva

    This is just what I needed! Thanks for this, the template is really helpful especially for me as I am still starting out.