How Is VAT Handled on Imports from China and the USA

This is a question I deal with constantly, particularly with ecommerce sellers, wholesalers, and growing businesses that source stock overseas. China and the USA are two of the most common import locations for UK businesses, and yet VAT on imports is still widely misunderstood. Many people assume VAT works in the same way as it does on UK purchases, but imports follow a very different process.

In this article I will explain clearly how VAT works when importing goods from China and the USA into the UK, when VAT is due, how it is paid, how it can be reclaimed, and where businesses most often go wrong. I will also cover import duty, courier charges, postponed VAT accounting, and the records HMRC expects you to keep. Everything here reflects current UK practice and guidance as applied by HM Revenue & Customs and published on GOV.UK, combined with real world experience supporting importers.

The starting point, imports are treated differently from UK purchases

When you buy goods from a UK supplier, VAT is charged by the supplier and reclaimed through your VAT return. Imports do not work like this.

When you import goods from China or the USA:

The overseas supplier does not charge UK VAT

VAT is collected at the UK border

VAT is based on customs value, not just the invoice price

Additional charges can apply before VAT is calculated

This is why import VAT often comes as a surprise to new importers.

What counts as an import for VAT purposes

An import occurs when goods are brought into the UK from outside the UK.

Both China and the USA are treated in exactly the same way for UK VAT purposes because they are non UK countries.

This means:

Import VAT applies

Customs declarations are required

Import duty may apply

VAT is handled through customs, not the supplier

There is no special VAT treatment simply because goods come from the USA rather than China.

When import VAT is charged

Import VAT is charged when goods enter the UK, not when you place the order and not when you receive the invoice.

Import VAT becomes due at the point the goods clear customs.

This usually happens when:

The goods arrive at a UK port or airport

The customs declaration is processed

HMRC calculates the charges due

If VAT is not paid or accounted for, the goods will not be released.

How import VAT is calculated

Import VAT is not calculated only on the value of the goods.

This is a key area where mistakes occur.

Import VAT is charged on the customs value, which usually includes:

The cost of the goods

Shipping and freight costs

Insurance costs

Import duty

VAT is then charged at the UK VAT rate that applies to the goods, usually 20 percent.

For example, if goods cost £5,000, shipping is £500, and duty is £250, VAT is charged on £5,750, not £5,000.

Import duty and how it fits in

Import duty is separate from VAT, but it directly affects how much VAT you pay.

Key points about import duty:

It depends on the type of goods

Rates vary by commodity code

It is calculated before VAT

It is not recoverable as VAT

Duty increases the base on which VAT is calculated, so incorrect duty classification can increase VAT unnecessarily.

Who pays import VAT

Import VAT is usually paid by the importer of record.

This is the person or business named on the customs declaration.

In practice, import VAT is often:

Paid by the courier on your behalf

Recharged to you before delivery

Included on a courier invoice

If you are importing for business, you need to know whether you are the importer of record, as this affects VAT recovery.

Paying import VAT at the border

There are two main ways import VAT is dealt with at the point of import.

Option one, paying import VAT upfront

Traditionally, import VAT is paid upfront before goods are released.

This usually happens when:

The courier pays HMRC

The courier invoices you for VAT and duty

Goods are delivered once paid

This creates a cash flow issue, because VAT is paid first and reclaimed later.

Option two, postponed VAT accounting

Postponed VAT accounting is one of the most important changes for UK importers.

Under postponed VAT accounting:

Import VAT is not paid upfront

VAT is declared on the VAT return instead

Input and output VAT are recorded in the same return

Cash flow is improved significantly

Most VAT registered UK businesses can use postponed VAT accounting for imports from China and the USA.

How postponed VAT accounting works in practice

When using postponed VAT accounting:

Import VAT is shown as output VAT on your VAT return

The same amount is reclaimed as input VAT

No physical payment is made at the border

Import VAT becomes VAT neutral in cash terms

This does not remove the VAT liability, but it removes the cash flow hit.

When you can reclaim import VAT

Import VAT can usually be reclaimed if:

You are VAT registered

The goods are for business use

The goods are used to make taxable supplies

You hold the correct evidence

If your business makes VAT exempt supplies, recovery may be restricted.

Evidence required to reclaim import VAT

This is a critical area.

If you pay import VAT upfront, you reclaim it using a C79 certificate, not a supplier invoice.

The C79 certificate is issued monthly by HMRC and shows:

Import VAT paid

Your business details

The period covered

If you use postponed VAT accounting, you use your postponed VAT statement, not a C79.

Without the correct document, HMRC can disallow the reclaim.

Import VAT and ecommerce businesses

Ecommerce sellers importing stock from China or the USA need to be especially careful.

Common issues include:

Couriers acting as importer of record incorrectly

Import VAT not being reclaimable

Incorrect commodity codes

Poor record keeping

Double charging of VAT

If the business is not named correctly on import documents, VAT recovery can be lost.

Low value imports and VAT

The old low value VAT relief no longer applies.

This means:

VAT applies regardless of value

Low value goods from China are not VAT free

Online sellers must price correctly

This change has caught many small importers out.

Importing goods for resale vs own use

VAT treatment is broadly the same whether goods are for resale or internal use, but the recovery position can differ.

If goods are:

Resold in taxable supplies, VAT is usually fully reclaimable

Used in exempt activities, VAT may be restricted

Used privately, VAT may not be reclaimable

The intended use of the goods matters.

Imports and Incoterms

Incoterms determine who is responsible for shipping, duty, and VAT.

For example:

DDP terms can shift VAT responsibility

EXW terms place responsibility on the buyer

DAP terms require careful handling

Using the wrong Incoterm can result in VAT being charged incorrectly or becoming irrecoverable.

Import VAT and overseas suppliers charging VAT

Overseas suppliers should not charge UK VAT on goods shipped from China or the USA.

If VAT appears on an overseas invoice:

It is not UK VAT

It is usually not reclaimable in the UK

It should be queried immediately

Paying foreign VAT unnecessarily is a common and expensive mistake.

Courier and clearance fees

Couriers often charge additional fees, such as:

Customs clearance charges

Administration fees

Disbursement fees

VAT treatment varies:

Some fees are standard rated

Some are outside the scope

Some include VAT that may be reclaimable

These invoices should always be reviewed carefully.

Import VAT and the Flat Rate Scheme

If you use the VAT Flat Rate Scheme, the rules differ.

Under the Flat Rate Scheme:

Import VAT is still payable

Import VAT can usually be reclaimed

Other input VAT is normally blocked

This is an important exception that many flat rate users miss.

Common mistakes I see with imports from China and the USA

These issues appear repeatedly in practice:

Paying import VAT upfront unnecessarily

Not using postponed VAT accounting

Missing C79 certificates

Couriers named as importer

Incorrect commodity codes

Treating import VAT like UK VAT

Poor documentation

Most of these errors are avoidable with the right setup.

How HMRC checks import VAT

HMRC cross checks import data with VAT returns.

They may:

Compare customs declarations to VAT returns

Review postponed VAT statements

Request C79 certificates

Check importer details

Review duty classifications

Inconsistencies are flagged quickly.

Best practice for handling import VAT

From experience, the strongest import VAT systems include:

Using postponed VAT accounting

Ensuring correct importer of record details

Checking commodity codes

Keeping all import documents

Reconciling import VAT monthly

Reviewing courier invoices carefully

Good processes prevent costly errors.

When to seek professional advice

Import VAT advice is strongly recommended if you:

Import regularly from China or the USA

Sell goods online

Use fulfilment centres

Have complex supply chains

Are scaling quickly

Have received HMRC queries

Import VAT mistakes scale very quickly as volumes increase.

Final thoughts on VAT and imports from China and the USA

Importing goods from China and the USA is now a normal part of doing business in the UK, but VAT on imports remains one of the least understood areas of the tax system.

Handled correctly, import VAT is largely a timing issue, not a cost. Handled poorly, it becomes a significant drain on cash flow and a source of HMRC disputes.

Understanding when VAT is charged, how it is calculated, how it is paid, and how it is reclaimed allows you to import confidently, price correctly, and grow without unpleasant surprises at the border.