An invoice says £40,000. The freight bill says £2,600. The buyer paid a £1,800 tooling cost directly to a third party, and the seller is a sister company in Rotterdam. What figure goes on the import declaration? Getting that number wrong is one of the most expensive mistakes in UK importing, because it multiplies straight through into duty and import VAT. The six customs valuation methods exist precisely to answer that question in a defensible, auditable way.
Why the customs valuation methods matter more than the invoice
HMRC guidance is blunt about the stakes: the customs value is the figure on which Customs Duty and import VAT are calculated, and the same value is also used for trade statistics. You must declare it “even if there is no duty or VAT to pay on the goods” or the goods enter a customs warehouse.
There are six methods, and they are not a menu. Importers must try Method 1 before going on to Method 2 and so on — with one narrow exception covered below. In practice this matters less often than it sounds: Method 1 covers over 90% of importations liable to ad valorem Customs Duty. The other five exist for the awkward 10% that trips up importers during a post-clearance audit.
Method 1: transaction value — the default
Method 1 uses the price actually paid or payable for the goods when sold for export to the UK. Three conditions must hold: there must be no restrictions on the buyer’s disposal or use of the goods (beyond those imposed by law, limited to a geographical resale area, or not substantially affecting value); the sale or price must not depend on conditions whose value cannot be worked out; and any proceeds the seller receives from later resale must be quantifiable and added.
The invoice total is rarely the finished answer. Costs that must be added include transport, insurance, loading and handling up to the UK border; packing and containers; selling commission and brokerage; royalties and licence fees paid as a condition of sale; buyer-supplied assists such as tools, dies, materials or engineering work used in production; and export taxes borne by the buyer.
Costs that may be excluded, provided they are shown separately, include delivery charges beyond the UK border, UK duties and taxes, earned trade or quantity discounts, buying commission paid to an agent outside the UK, interest on financing, and post-importation work such as assembly or maintenance. That is exactly where the delivery terms bite — which is why the Incoterm you agree changes the declared value, a point we unpack in the practical guide to DDP, DAP and EXW in UK–EU trade.
Two situations knock you out of Method 1 altogether. Where there is no sale — free consignments, samples, promotional items, goods on consignment, branch transfers, hire or leasing, loaned goods — the method cannot be used. Where buyer and seller are related, the price can still be accepted “if you can show that the relationship has not affected the price”, typically by comparison with sales of identical or similar goods between unrelated parties.
Methods 2 and 3: identical and similar goods
Method 2 substitutes the transaction value of identical goods sold for export to the UK at or about the same time. Method 3 does the same with similar goods — commercially interchangeable, made in the same country, with like characteristics and materials. Both depend on having usable comparison data, which means keeping records of past entries in a form you can actually retrieve.
Methods 4 and 5: working backwards or forwards
Method 4, the deductive method, starts from the price at which the imported goods (or identical or similar goods) are sold in the UK in the condition as imported, at or within a reasonable time of importation. From that you deduct the usual commission or the usual addition for profit and general expenses, UK transport and insurance costs, UK customs duties and internal taxes, and any value added by processing in the UK. Where there is no sale within a reasonable period, the importer can use the unit price of actual sales taking place up to 90 days after importation.
Method 5, the computed method, builds the value up instead: the cost or value of materials, fabrication and other processing used in producing the goods, plus profit and general expenses.
This is the one place the sequence relaxes. HMRC states that importers “may try Method 5 before Method 4 if they wish” — useful when you are the manufacturer’s UK arm and have production costings but no arm’s-length UK sale to work from.
Method 6: the fallback, and its hard limits
Method 6 applies Methods 1 to 5 flexibly, by reasonable means consistent with the valuation legislation. It is deliberately fenced in. You cannot base the value on: the UK selling price of goods produced in the UK; a system that accepts the higher of two alternative values; the domestic market price in the country of exportation; cost of production other than computed values for identical or similar goods; prices for export to a country outside the UK customs territory; minimum customs values; or arbitrary or fictitious values.
If your declared value came from “what similar stuff sells for on the UK market”, you are on the wrong side of that list.
Checklist before you declare a value
- Confirm there is a genuine sale for export to the UK — if not, Method 1 is out.
- Check for a relationship between buyer and seller, and prepare the evidence that it did not affect the price.
- Add the mandatory elements: freight and insurance to the UK border, packing, commissions, royalties, assists, export taxes.
- Deduct only what is shown separately on the invoice or contract.
- If you fall past Method 1, document why each method was unavailable, in order.
- Keep the supporting documents for at least 4 years.
- Re-check valuation alongside classification and origin — the three together drive the duty figure, and relief schemes can change the outcome (see duty relief schemes for UK importers).
If you want the duty and VAT impact modelled before the goods move rather than after, Easy Clearance runs a landed cost calculator for UK imports, and explains how the same customs value feeds both charges in its note on duty and VAT on imports from the UK.
Mini-FAQ
Can I choose which customs valuation method to use?
No. The methods are applied in sequence: you must try Method 1 first, then 2, then 3, then 4 or 5, and only then Method 6. The single exception is that Method 5 may be tried before Method 4 if you wish.
Do I include freight in the customs value?
Under Method 1 you must add the costs of transport, insurance, loading and handling connected with delivering the goods to the UK border. Delivery charges incurred beyond the UK border may be excluded if shown separately.
What if the goods are free samples?
There is no sale, so Method 1 cannot be used. You move to Method 2 and work down the sequence.
How long must I keep valuation records?
HMRC guidance requires you to keep the documents and information supporting the declared value for at least 4 years.
Does a related-party purchase automatically block Method 1?
No. The price can be accepted if you can show the relationship did not affect it, for example by comparing it with transactions in identical or similar goods between unrelated parties.
Sources (gov.uk)
- GOV.UK — Customs valuation: introduction (method sequence, Method 5 before Method 4, use of the value).
- GOV.UK — Valuing imported goods using Method 1 (transaction value) (conditions, additions, exclusions, related parties).
- GOV.UK — Customs valuation: Method 4 (deductive method) (deductions, 90-day rule).
- GOV.UK — Customs valuation: Method 6 (fallback method) (prohibited bases of valuation).
- GOV.UK — Prepare to work out the customs value of your imported goods (record keeping, duty to declare the value).
