Customs Associates


Duty valuation

The basic principles of customs valuation set out that the customs value of goods is based on six hierarchical rules. The rules must be applied in turn to the import concerned and, once a customs value can be arrived at under that rule, no further action is taken (although rules 4 and 5 are interchangeable). The six rules in order are:

  1. transaction sale value
  2. identical goods imported within a reasonable time limit of other goods imported under a transaction value
  3. similar goods imported within a reasonable time limit to other goods imported at a transaction value
  4. the selling price in the Community less certain deductions
  5. the built up price
  6. fallback rule applying all reasonable principles.

While most goods are declared under method 1, customs valuation is clearly not a simple matter. It is complicated by issues such as:

  • royalties or licence fees that are payable for the goods;
  • materials, components and tooling supplied free of charge or at a reduced cost to the overseas manufacturer;
  • commissions and profit sharing;
  • related party transactions and transfer pricing.

There are costs that can be excluded from the customs value such as buying commissions, discounts and interest charges but international transport costs are dutiable and must be accounted for properly. In general, it is necessary to consider each case on its own merits taking individual circumstances into account.


Transfer pricing and the value of goods for customs purposes

Customs duty is generally determined as a percentage of the value of the goods. The percentage rate to be applied depends on the detailed description of the goods (see Classification). The customs value is based on the CIF (cost, insurance and freight) value of the goods and the sale to be declared at import must be the transaction that took place immediately prior to import. Transactions between related, or even associated, companies may be investigated by the customs authorities.


Internet sales

The value for customs purposes is based on the sale occurring immediately prior to import which means that, if goods are sold directly from a supplier overseas to an end customer in the UK, the duty and VAT will be assessed on that sales price.