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bigduckontax, Accountant
Category: Tax
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I'm representing a luxury rug designer in the UK. The

Customer Question

Hi - I'm representing a luxury rug designer in the UK. The designer is based in the US (and is not VAT registered in the UK...there's no company here.)
I have a prospect who wants to buy a rug (approx cost GBP 11,000). They've asked me what other costs they'd need to pay...and I don't know the answer.
Here's a twist: the rug is woven (manufactured) in Nepal, by a contractor we work with. So it will be shipped from Nepal to London, not from the US. (Although - side note - if it helps we could ship it to the US first.)
SO...what VAT and excise can I tell my customer to anticipate?
Greatly appreciate your help on this.
Bruno Kavanagh
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

You have a problem here. If the goods are shipped to the UK then on arrival Customs may assess an Import Duty (there are literally hundreds of these, but the rate for this would appear to be of the order of 5.6%) and also apply VAT. The Duty would form part of your cost of sales and the VAT would be an input, reclaimable on your quarterly return if you are registered for VAT. However, Customs do not always charge Duty and VAT on importation, the procedure can be very erratic. Shipping direct to the States is an obvious way round this difficulty.

I do hope that you find my answer of assistance.

Customer: replied 1 year ago.
Hi Keith -Not totally following you here. What is the "problem" I have - simply that the procedure is erratic and not predictable?Also, I'm not importing the rug myself - I'm importing it for a customer (I'm just the salesman arranging the deal)So let's say the rug's price is GBP 10,000. Should I say to my customer:
- Base price is 10,000
- Add 5.6% Excise Duty (560)
- Add shipping and insurance (let's say 1,000)
- Pay VAT on the lot (20% x 11,560) = 2,312So the out-of-pocket cost to my customer is 12,312 (the VAT component of which they may be able to claim back, esp. if they sell the rug on - assuming they're VAT registered.)However (practical point) my invoice would just have the cost of the rug, shipping and insurance (in my example this would be 11,560). The VAT and Excise would be invoiced separately by HMRC and paid directly to HMRC by my end customer (i.e. a cheque to HMRC of 2,312).Have I got this right?
Expert:  bigduckontax replied 1 year ago.

In general terms you have. The problem is that Customs do not always bother to charge Duty and VAT on importation so you can never be sure which way the Customs cat will jump from day to day. The solution to this conundrum is, as I told you, to have the item shipped direct to the States.

Customer: replied 1 year ago.
OK...but how does it help me to have the item shipped to the States (when I need it for a customer in London)?Are you saying it would be less likely to be charted Duty and VAT coming from the USA to London (as opposed to Nepal direct to London).Not following....pls advice.
Expert:  bigduckontax replied 1 year ago.

Oh, I see, your original question was a tad obscure and could be read as though you had an US customer. Clearly there is no point in a double shuffle.

So you are importing direct from Nepal, thus the actions of Customs have a direct bearing and you will have to see which way they act on the day. It really is as tricky as that. Remember Customs are really trying to stop importation of illegal items so quite a bit of simply routine stuff gets through without intervention.

Customer: replied 1 year ago.
Is it me (the supplier) who will "have to see" - or my customer? Based on what you've said I could say to my customer:"My invoice will be 11,560, which you will pay to me (for the rug plus shipping and insurance). You may be charged an additional 20% VAT and 5.6% Excise by HMRC...but you may not. Depends on the day - you'll have to wait and see."Is that right?
Expert:  bigduckontax replied 1 year ago.

Correct, very boring, but that is the reality of the situation. You have the calculation wrong, it will be Import Duty upon which VAT will be added. Also the rate of Duty may be incorrect, there are simply hundreds of different rates.

Customer: replied 1 year ago.
OK - so can you do a sample calculation for me based on a base price of 10,000 (assuming Import Duty 5.6% which I'll need to check).This will help me understand where I have the calculation wrong.
Expert:  bigduckontax replied 1 year ago.

10K plus 5.6% = 1056 plus 20% VAT =12.672K.

Also it is a rug; Customs may take one look at it, impound it and consign it to the furnace; particularly if it is a part animal product..

Customer: replied 1 year ago.
Crikey - you're a bundle of laughs ;-)(And for the record, I think VAT is calculated on the shipping and insurance in addition to the base price - so in my example I think it would be 10k + 560 plus 1k (shipping) x 20%)
Expert:  bigduckontax replied 1 year ago.

I have worked in Nepal so I know just how tricky Customs can be on imports!

Indeed, you must take shipping and insurance into the base price for the application of VAT.