Understanding the UK-EU Trade and Cooperation Agreement
The Trade and Cooperation Agreement (TCA) between the UK and the EU came into force on 1 January 2021. It allows for tariff-free and quota-free trade in goods that originate in either the UK or the EU. This means many businesses face zero tariffs on EU imports, provided they can prove the goods meet the Rules of Origin requirements. The TCA is the single most important document governing post-Brexit trade and determines whether your imports attract duty or enter duty-free.
The key challenge is proving origin. Goods must either be wholly obtained in the EU (like agricultural products grown there) or sufficiently processed according to product-specific rules. For manufactured goods, this often means a percentage threshold of non-originating materials. Your EU supplier must provide a statement on origin on their invoice or packing list for you to claim preferential treatment at the border.
If your goods do not qualify for preferential origin, the standard UK Global Tariff rates apply. These replaced the EU Common External Tariff and are generally similar, though the UK simplified some rates in 2021. For businesses importing regularly, understanding whether products qualify under the TCA can mean the difference between paying thousands in duty or paying nothing at all.
How Import Duty Works Under the UK Global Tariff
The UK Global Tariff is the official schedule of import duty rates applied to goods entering the UK from countries without a preferential trade agreement. Each product is classified under an HS (Harmonised System) code, which determines the exact duty rate. Rates range from 0% on many raw materials and pharmaceuticals to over 20% on certain agricultural and textile products.
To find your tariff rate, look up the 10-digit commodity code on the Check Trade Tariff service (check-trade-tariff.service.gov.uk). The rate you pay depends on the product, its origin, and whether a trade agreement applies. EU-origin goods with valid proof of origin enter at 0% under the TCA. Goods from countries without a UK trade agreement pay the full MFN (Most Favoured Nation) rate listed in the tariff.
Import duty is calculated on the customs value of the goods, which is typically the transaction value (the price paid). It does not include shipping or insurance costs. For example, a shipment of €2,000 in machine parts with a 4% tariff would incur £80 in duty (assuming a GBP exchange rate). This duty is a real cost that cannot be reclaimed, unlike VAT, so it directly impacts your profit margins.
VAT on Imports: What Changed After Brexit
Before Brexit, goods moving between the UK and EU were part of a single VAT area with no border VAT checks. Acquisitions from EU member states were reported on the reverse-charge mechanism. After Brexit, imports from the EU are treated the same as imports from anywhere else in the world. VAT is charged at the point of entry at the standard UK rate of 20% (or reduced rates for certain products).
The biggest improvement for businesses is Postponed VAT Accounting (PVA). When you use PVA, you do not pay import VAT upfront at the border. Instead, you account for it on your VAT return as output tax and reclaim it as input tax in the same period. This eliminates the cash flow hit that used to occur when paying VAT at customs and waiting weeks to reclaim it. Most VAT-registered businesses should opt into PVA.
For goods sold directly to UK consumers by EU sellers, the rules differ based on value. Consignments valued under £135 are subject to UK VAT at the point of sale (collected by the online marketplace or seller), not at the border. Above £135, normal import VAT procedures apply. This system was introduced to prevent VAT evasion on low-value cross-border e-commerce, which was widespread before 2021.
Customs Declaration Fees and Broker Costs
Every commercial import requires a customs declaration submitted to HMRC. Most small and medium businesses use a customs broker or freight forwarder to handle this. Fees range from £25 for a simple single-line entry to £150 or more for complex shipments with multiple commodity codes, licences, or certificates. High-volume importers may invest in customs software to file their own declarations, reducing per-entry cost to under £5.
The complexity of your shipment drives the fee. A single box of one product type requires one tariff line and minimal documentation. A mixed consignment with 20 different products needs 20 separate tariff lines, each with its own duty rate and origin check. For regular importers, negotiating a flat-rate agreement with a broker based on monthly volume can reduce costs significantly.
Some freight forwarders bundle customs clearance into their shipping price, which simplifies the process but may hide the true cost. Always ask for a breakdown of shipping versus customs fees. If you import the same products regularly, consider using cost per mile tracking to compare total logistics costs across different suppliers and routes.
Rules of Origin: The Key to Zero Tariffs
Rules of Origin determine the economic nationality of a product. Under the TCA, goods are eligible for zero tariffs only if they originate in the UK or EU. This does not mean the goods must be made entirely from EU/UK materials. Most products allow some non-originating content, but the rules vary by HS code and product type.
Product-specific origin rules fall into several categories. Wholly Obtained (WO) applies to minerals extracted or plants grown in the territory. Wholly Produced (WP) covers goods manufactured entirely from originating materials. Sufficient Transformation (ST) allows non-originating inputs if the manufacturing process transforms them enough, measured by value percentage or change of tariff classification. Your EU supplier must provide documentation proving compliance.
A common pitfall is assuming that buying from an EU company automatically means the goods originate in the EU. A German distributor selling Chinese-made electronics, for instance, would not qualify for preferential origin. The goods were made in China, and the German company is just the intermediary. Always confirm the actual manufacturing origin with your supplier and request a statement on origin if the goods qualify.
Pricing Your Imports for Profit
Understanding your total landed cost is critical for setting profitable resale prices. Many businesses price based on the invoice cost plus a standard margin, forgetting to account for duty, VAT, and customs fees. This leads to underpricing and eroded margins. The calculator above gives you the full picture so you can price with confidence.
A practical approach is to calculate the markup needed to cover both goods cost and Brexit-related charges. For example, if a shipment of €5,000 in goods incurs £350 in duty, £1,070 in VAT, and £75 in customs fees, your total landed cost is the goods value plus £425 in non-reclaimable costs (duty and fees, since VAT is reclaimable). You need a markup that covers this £425 plus your operating costs and desired profit.
For businesses buying and selling imported goods, tracking the break even point helps determine minimum sales volume. If your per-unit import cost has risen by 8% due to Brexit charges, your break-even volume increases accordingly. Similarly, ROI calculations should use landed cost as the investment basis, not the supplier invoice price, to reflect true profitability.
Cash Flow Implications for Importing Businesses
Importing ties up cash in ways that domestic purchasing does not. Duty must be paid at the border (or deferred if you have a duty deferment account). VAT can be postponed using PVA, but the customs declaration fee is due immediately. For a business importing £50,000 of goods monthly, the duty alone could be £2,500 or more, creating a significant cash flow burden.
Duty Deferment Accounts allow approved importers to pay duty monthly instead of per shipment. HMRC offers these to businesses with a good compliance record. The deferment period is up to 46 days, meaning you can import goods, sell them, and use the revenue to pay the duty when it falls due. This arrangement dramatically improves working capital for regular importers.
For long-term financial planning, consider how compound interest affects tied-up capital. Money spent on upfront import duties is money not earning returns elsewhere. Similarly, if you finance imports through a credit facility, the APR on that facility adds another layer of cost to your import operations that should be factored into pricing decisions.
Inflation, Exchange Rates, and Total Import Cost
Brexit-related import costs do not exist in isolation. Exchange rate movements between GBP and EUR can have a larger impact on your costs than tariffs. A 5% shift in the exchange rate on a €10,000 order equals €500, which may exceed the duty and customs fees combined. Monitoring currency trends and hedging with forward contracts can protect margins on large orders.
UK inflation has been volatile since the referendum, and import costs are a contributing factor. When the pound weakens, imported goods become more expensive in GBP terms, amplifying the effect of any tariffs. Businesses that source heavily from the EU should track both exchange rates and inflation trends when forecasting annual procurement budgets.
To compare the unit economics of different suppliers, calculate the unit price based on total landed cost rather than supplier quote alone. A supplier offering a 10% lower unit price may still be more expensive after duty and fees if their goods do not qualify for preferential origin. Running the numbers through this calculator for each supplier lets you make data-driven sourcing decisions.