Determining the correct customs value for imported goods is one of the most challenging aspects of the import process, yet it directly impacts the duties and taxes your business pays. At MartinTrux, our team works with importers throughout the UK, including through our customs clearance services in Dover, to ensure proper valuation and compliance with UK customs requirements.
The Six Customs Valuation Methods
UK customs law recognises six distinct methods for determining the customs value of imported goods. These methods must be considered in sequential order, with each subsequent method only applicable if the previous cannot be used.
Method 1: Transaction Value
The transaction value method is the primary and most frequently used approach, accounting for approximately 90% of import valuations. This method bases the customs value on the actual price paid or payable for the goods when sold for export to the UK, with certain adjustments.
Key elements that must be added to the transaction value include:
- Commission and brokerage fees (except buying commissions)
- Packaging costs
- Assists (goods or services provided by the buyer free of charge)
- Royalties and licence fees related to the imported goods
- Proceeds of subsequent resale that accrue to the seller
As we’ve discussed in our article on how much customs clearance costs, these additions can significantly impact the final duty amount.
Method 2: Transaction Value of Identical Goods
When Method 1 cannot be applied, customs authorities look to the transaction value of identical goods imported at or about the same time. For this method to apply, the goods must be:
- The same in all respects, including physical characteristics
- Produced in the same country
- Produced by the same person (if possible)
Adjustments are made for differences in commercial level and quantity, as well as transport and insurance costs.
Method 3: Transaction Value of Similar Goods
If neither Method 1 nor Method 2 can be used, the value may be based on similar (but not identical) goods. While similar goods have different physical characteristics, they:
- Perform the same functions
- Are commercially interchangeable
- Are produced in the same country
- Are produced by the same person (if possible)
Method 4: Deductive Value Method
The deductive method works backward from the selling price in the UK market. The valuation starts with the unit price at which the imported goods are sold in the UK in the greatest aggregate quantity, then deducts:
- Commissions or profit margins for UK sales
- Transport and insurance costs within the UK
- UK customs duties and taxes
This method requires detailed sales data and can be complex to calculate accurately.
Method 5: Computed Value Method
The computed value method builds up the value from production costs. It includes:
- Cost of materials, fabrication, and processing
- Profit and general expenses reflective of sales of goods of the same class
- Transport, loading, and handling charges
- Insurance costs
This method often requires access to the manufacturer’s confidential cost information, making it difficult to apply in practice.
Method 6: Fall-back Method
As a last resort, the fall-back method allows for reasonable flexibility in applying the previous methods, with certain restrictions. The value must be determined using reasonable means consistent with the principles of the WTO Valuation Agreement.
Values cannot be based on:
- The selling price of UK-produced goods
- The higher of two alternative values
- Arbitrary or fictitious values
- Minimum customs values
Common Valuation Challenges for UK Importers
Through our work with clients across various industries, we’ve identified several recurrent challenges in customs valuation:
Related Party Transactions
When buyer and seller are related, customs authorities often scrutinise the transaction value to ensure it hasn’t been influenced by the relationship. As noted in our post about import documentation requirements, related party transactions require additional documentation to substantiate the declared value.
Currency Conversion Issues
For imports invoiced in foreign currencies, the exchange rate used can significantly impact the customs value. UK customs regulations specify that the rate of exchange to be used is the one published by the relevant authorities on the date of importation.
Royalties and Licence Fees
Determining whether royalties and licence fees should be included in the customs value can be complex. The key question is whether the payment is a condition of sale for the imported goods, which often requires careful analysis of licensing agreements.
Documentation Requirements for Customs Valuation
To support your declared customs value, you should maintain comprehensive documentation, including:
- Commercial invoices showing the price actually paid or payable
- Contracts of sale and related amendments
- Proof of payment for the goods
- Evidence of additions or deductions to the price paid
- Documentation of related party relationships and price setting
Having this documentation readily available not only facilitates the customs clearance process but also provides protection during potential post-clearance audits.
Getting Expert Assistance
Given the complexity of customs valuation and the financial implications of incorrect valuations, many businesses benefit from professional guidance. At MartinTrux, we provide detailed assistance with customs valuation matters as part of our comprehensive customs clearance services.
Our team stays current with all UK valuation regulations and practices, helping importers determine the correct customs value while identifying legitimate opportunities to minimise duty liability.
Whether you’re dealing with complex related party transactions or struggling to determine which valuation method applies to your situation, our customs broker UK specialists can provide the expertise you need to navigate these challenges confidently.
Contact MartinTrux today to discuss how our customs clearance services in Dover can help ensure your import valuations are both compliant and optimised, saving you money while reducing the risk of penalties and reassessments.