Low value imports

The government has published its response to the consultation on low value imports (LVIs), confirming significant changes to the customs treatment of goods imported into Great Britain in consignments valued at £135 or less.

The reforms will remove the existing customs duty relief for most low value consignments and introduce new compliance obligations that could affect costs, operating models and reporting requirements for sellers and online marketplaces.

1. The end of duty-free imports?

Not quite yet. The changes are expected to take effect by October 2028 at the latest. However, businesses importing low value goods should start paying attention now as the changes will affect both the cost of importing goods into Great Britain and how customs obligations are managed.

The new rules will apply to most consignments valued at £135 or less. However, certain imports will remain outside the new regime, including goods subject to excise duty, trade defence measures, import restrictions and non-ad valorem tariff rates. Reliefs, quotas and special procedures will also continue to use the standard import customs arrangements.

2. No shortcut on tariffs

Hopes of a simplified tariff system, based on a “bucket” approach, have been dashed. Businesses will need to identify the correct commodity codes in order to apply the appropriate UK Global Tariff rate, making accurate classification more important than ever.

3. Who pays the duty?

One of the more significant changes is not the introduction of duty itself, but how it is collected. Under the new regime, sellers, or online marketplaces where they facilitate the sale, will be responsible for accounting for customs duty and paying it to HMRC on a quarterly basis.

The aim is to move duty collection away from the border and closer to the point of sale, with the government viewing sellers and marketplaces as best placed to provide accurate product information and calculate duty correctly.

4. HMRC wants better data

The new regime will require sellers and marketplaces to provide item-level data to HMRC. Better product-level information will help HMRC identify undervaluation, misclassification and other compliance risks, as well as ensuring the correct amount of duty is collected. For businesses, this means product data and classification processes are likely to come under greater scrutiny than before.

5. A new challenge for overseas sellers

Overseas sellers and online marketplaces without a UK presence will generally be required to appoint a UK-based fiscal representative. The representative is expected to share liability for customs debts arising under the new regime.

The government's view is that this provides HMRC with a UK-based point of accountability where direct enforcement against overseas businesses may be more difficult. However, many consultation respondents questioned whether enough businesses would be willing to take on the commercial risk associated with acting as a fiscal representative.

Some businesses may be disappointed by the outcome of the consultation. Requests for simplified tariff arrangements and lighter-touch compliance obligations were largely rejected.

However, the consultation response does provide something many businesses have been asking for; greater certainty.

While a number of details still need to be worked through, businesses now have a much clearer picture of how the new regime is likely to operate and can begin assessing whether existing customs processes, systems and operating models will remain fit for purpose.

Uncertainty remains around VAT

The customs position is now much clearer than the VAT position. The government still wants VAT and customs processes to be better aligned, but it has not yet confirmed if the existing VAT collection model will be replaced.

At the moment import VAT is not payable as instead VAT is collected at the point of sale and declared on a regular VAT return. Options to change this currently being considered include closer integration of VAT and customs duty reporting, as well as how VAT should be calculated where customs duty applies. For many businesses, the customs position may now be clearer than the VAT consequences.

The government has also confirmed that an additional fee will be introduced to reflect the administrative costs associated with handling low value imports. However, the amount of the fee and how it will operate are still being developed. As a result, the full cost of the new regime remains uncertain.

Implementation may still be some way off, but the consultation response provides businesses with a much clearer picture of where HMRC intends to go.

Businesses should consider whether:

• customs data is complete, accurate and consistent
• classification, origin and valuation decisions are properly documented
• product information is sufficient to support future item-level reporting requirements
• marketplace and fulfilment arrangements remain fit for purpose
• a UK fiscal representative may be required for non-UK sellers.

While many of the detailed rules still need to be developed, businesses do not need to wait until 2028 to start assessing the potential impact.

Those that understand their products, data and customs processes now are likely to be better placed to respond as the final rules emerge.

If you would like to discuss how the proposed changes could affect your business, please contact your usual Crowe contact.