Understanding Customs Valuations: The Transaction Value

There is no way to get around the fact that correctly valuing your products for customs purposes is integral. 

The amount of import VAT and customs duty you are liable for will depend on the customs valuation.  As such, it is easy to work out why it is one of the most scrutinised areas by customs and HMRC auditors.   

With more businesses reporting audits by HMRC, there is no better time to make sure that you are correctly valuing your goods and subsequently, paying the right amount of duty and accounting for the correct level of import VAT.  

The 6 Methods: 

Overall, there are 6 methods that a business can use to correctly value their goods.  When finding the method that works for the goods, movement, and price paid, you should always consider Method 1 first.  If Method 1 is not right for your situation, then move to Method 2, and so on and so on.  The only exception is that you can use Method 5 ahead of Method 4 if you wish.  

But Method 1, the Transaction Value, is where we’re focusing on today. 

Method 1: Transaction Method 

This is the method that you should use whenever possible and, as you would expect, is the most common method used.  HMRC claim that Method 1 is used for over 90% of imports.  

Method 1 is generally pretty simple to work out.  The customs value is based on the price actually paid by the buyer to the seller for the goods when they are sold for import to the UK.  

As the seller, the important thing you need to consider is whether a suitable value is being paid for the goods.  For example, if they are free or an intra-company transfer, then you’ll need to look at another method.  Similarly, Method 1 will not be acceptable when: 

• The seller bases the price on the condition that the buyer will also buy additional goods in the future 

• The price relies upon the price(s) at which the buyer sells other goods to the original seller 

• Finally, if there is a relationship between the seller and the buyer, you may only use Method 1 if the importer can show that the relationship has not affected the price and, ultimately, no preferential treatment has occurred.  This relationship can arise through family (either blood, adoption or marriage) or via a business relationship.  

Transaction Value – What is Included? 

As well as the price paid for the goods, under the transaction value method, you also need to ensure that the following areas are included within the price for customs purposes: 

• The container of the goods (by which we do not mean shipping container, but rather bottles for containing liquid, for example) 

• The packaging of the goods (both materials and labour)  

• Transport and insurance of the goods, up to the time the goods are imported into the UK 

• Loading and handling of the goods, up to the time the goods are imported into the UK, 

• Commission, except buying commission, and brokerage fees paid by the buyer of the goods 

• Export duty charged in the place of origin; and 

• Demurrage costs, which have been incurred before the goods have arrived in the UK. 

Transaction Value – What can be excluded? 

As always, when you have a list of costs that can be included, you also get a list of costs that can be excluded.  

• Import duty in respect of the goods (though this will be added to the customs value to calculate the VAT that needs to be accounted for) 

• Buying commission in respect of the goods 

• The right to reproduce the goods in the UK 

• Transport and insurance of the goods, after the time the goods are imported into the UK 

• The assembly, construction, erection or maintenance of the goods or the provision of technical assistance in relation to the goods, to the extent such activity applies after the time the goods are imported into the UK 

• Costs incurred for storage of the goods whilst they are held in a temporary storage facility or held in storage further to a special Customs procedure; and 

• Any increase in value which occurs after the goods are imported into the United Kingdom. 

Conclusion: 

This is the first method that any business should consider when deciding upon the customs value for their products.  As shown above, this method is relatively easy to demonstrate (and if necessary, provide back-up evidence) with it being based on the price actually paid or payable for the goods.   

As the importer, you should consider whether an acceptable transaction value exists and ensure that the additional costs are included in the final price.