How Is VAT Handled on Imports from China and the USA

Understanding import VAT

When you import goods into the UK from any non-UK country, including China and the USA, the goods are treated as imports for VAT purposes. Import VAT is charged in the same way as VAT on UK purchases, but it is collected at the point of entry into the UK rather than by the overseas supplier.

Import VAT is calculated based on:

• The customs value of the goods (including shipping, insurance, and any customs duties).

• The applicable UK VAT rate (usually 20% for standard-rated goods).

For example, if you import goods valued at £10,000, including shipping, and the standard VAT rate applies, HMRC will charge £2,000 in import VAT.

The key question is when and how you pay this VAT and this is where Postponed VAT Accounting comes in.

Using Postponed VAT Accounting (PVA)

Since 2021, UK VAT-registered businesses have been able to use Postponed VAT Accounting for all imports. This system allows you to account for import VAT on your VAT return rather than paying it upfront when the goods arrive.

This means you do not have to pay VAT at the border and then reclaim it later, improving your cash flow. Instead, you declare both:

• The VAT due on imported goods as output tax.

• The same amount as input tax (if the goods are used for business purposes).

In effect, the two entries cancel each other out, so there is no net VAT payment to HMRC unless you are partially exempt or the goods are used for non-business activities.

Example of PVA

A UK company imports electronics from China worth £10,000. Under PVA:

1. The company declares £2,000 VAT (20% of £10,000) as output tax on its VAT return.

2. It simultaneously claims £2,000 as input tax on the same return.

The company pays nothing at the point of import and avoids tying up cash with HMRC.

To use PVA, you must select this option when completing your customs declaration, typically using your freight agent or customs broker.

Import VAT without Postponed VAT Accounting

If you do not use PVA, you will need to pay import VAT at the border to release your goods. HMRC or your courier will issue a C79 certificate showing the amount of VAT paid.

You can reclaim this VAT on your next VAT return, but only if you have the C79 certificate as evidence.

This traditional method can cause cash flow problems because you must pay VAT upfront and wait until your next return to reclaim it. Most VAT-registered importers now prefer using PVA for this reason.

Customs duties and VAT

Import VAT is separate from customs duties, which may also apply depending on the type and origin of the goods.

• Goods from China and the USA are not covered by free trade agreements that remove tariffs, so customs duties often apply.

• The customs duty is calculated first, and VAT is charged on the total value including duty, shipping, and insurance.

While customs duty cannot be reclaimed, import VAT can be reclaimed if the goods are for business use.

VAT on goods bought through online marketplaces

If you buy goods from China or the USA through an online marketplace such as Amazon, eBay, or AliExpress, the VAT rules depend on the value and the seller’s arrangements.

• For goods worth £135 or less, VAT is collected at the point of sale by the marketplace or seller. You do not pay import VAT at the border.

• For goods worth more than £135, import VAT is charged at the border in the usual way and can be reclaimed if you are VAT-registered.

Always check your invoices to confirm whether VAT has already been charged before claiming it on your VAT return.

VAT on imports from China

Imports from China are treated like any other non-UK imports. Most businesses use PVA to account for import VAT.

However, certain Chinese suppliers may have arrangements through UK fulfilment warehouses or online marketplaces, in which case VAT might already be charged at the point of sale.

To stay compliant:

• Ensure your Chinese supplier declares the correct value on customs paperwork.

• Retain all import documentation, including invoices, shipping records, and customs declarations.

• Verify that the freight agent uses your VAT number and the correct PVA option if applicable.

Failing to provide accurate documentation can lead to customs delays or incorrect VAT assessments.

VAT on imports from the USA

The process for the USA is the same as for China. You can use PVA to account for import VAT, or pay VAT upfront if PVA is not selected.

If your business frequently imports from the USA, it may be beneficial to register with HMRC’s Customs Declaration Service (CDS) and set up a GB EORI number, which is required for all importers.

You should also:

• Check whether your US suppliers use Incoterms such as DDP (Delivered Duty Paid) or DAP (Delivered at Place), as these affect who pays VAT and duties.

• Ensure invoices show whether VAT has been included.

• Keep all customs import entries to support your VAT claims.

How to reclaim import VAT

If you use Postponed VAT Accounting, you can view your monthly statements through HMRC’s Postponed Import VAT Statement (PIVS) service. This shows the import VAT declared on your customs entries each month.

You can download these statements from your HMRC online account and use them as evidence when completing your VAT return.

If you paid VAT upfront, use the C79 certificate issued by HMRC to reclaim the VAT on your next return. Without this document, HMRC will not allow the reclaim.

Always make sure that your VAT return entries match the figures shown on your PVA statement or C79 certificate.

Record keeping for imported goods

Good record keeping is essential to prove that your import VAT claims are valid. You should retain:

• Supplier invoices showing the value of goods and shipping costs.

• Customs declarations (SAD or C88 forms).

• Proof of payment for duties and VAT.

• PVA statements or C79 certificates.

• Freight and delivery documentation.

These records must be kept for at least six years in case HMRC audits your VAT claims.

Common VAT import mistakes to avoid

• Not using your VAT number on import paperwork, which prevents VAT reclaim.

• Failing to download and keep PVA statements each month.

• Claiming VAT on goods for personal or exempt business use.

• Using the wrong customs value when calculating import VAT.

• Missing VAT already charged by the supplier or marketplace.

By avoiding these mistakes, you can ensure that your VAT returns are accurate and compliant.

Final thoughts

VAT on imports from China and the USA can seem complicated, but with Postponed VAT Accounting, most UK businesses can simplify the process and improve cash flow. The key is to keep accurate records, understand how VAT is applied, and ensure customs declarations are completed correctly.

If you import regularly or deal with complex supply chains, a VAT accountant or customs specialist can help you manage the process, reclaim VAT correctly, and stay fully compliant with HMRC.