Important forms to
FAS – Free Alongside Ship
FAS Terms require the seller to place the goods alongside the carrier vessel at the port of export.With it being their responsibility to perform export clearance. The buyer then takes responsibility for the goods from that point onwards.
FOB – Free on Board
FOB Terms indicate the seller and buyer have fairly equal responsibilities for all costs, risks and liabilities associated with the movement of the goods. FOB is usually the recommended option for importers and buyers as it allows greater control of costs.
EXW – Ex Works
Ex Works terms indicate the buyer is responsible for collecting the goods from the seller and accepts all onwards arrangements including costs, risks and liabilities
FCA – Free Carrier
FCA terms indicate that the seller is responsible for the goods, including costs, up to delivery to the buyer’s chosen carrier at a named location – often a terminal or transport hub or forwarder’s warehouse. The seller is responsible for export clearance, after which the responsibility transfers to the buyer
CPT – Carriage Paid To
CPT shipping terms indicate that the seller bears all costs of transporting goods to the port of discharge. The sellers responsibility for the goods ends on delivery of the freight.
CIP – Carriage And Insurance Paid To
CIP terms indicate the same seller responsibilities as CPT (cost to port of discharge, responsibility to delivery to carrier) but with the additional inclusion of maritime insurance
DAT – Delivered At Terminal
DAT Terms mean the seller is responsible for delivery to the destination port. After which the oweness is on the buyer. The buyer is responsible for all costs from the point of delivery.
DAP – Delivered At Place
Very similar terms to DAT, with the difference that the buyer is responsible for unloading the goods at the named place of delivery. Buyer assumes responsibility from the point of unloading.
DDP – Delivered Duty Paid
A term indicating that the shipper/consignor is responsible for paying all duties and taxes at the agreed delivery point. DDP terms indicate that the seller is responsible for carriage and delivery. The buyer’s responsibility for the goods begins when they receive them for unloading at destination.
What are CIF terms?
CIF stands for cost, insurance and freight. The terms specify the division of responsibility between the shipper/supplier and the consignee/buyer in the process of shipping the cargo from one destination to another.
When a shipment is shipped on CIF terms the shippers/suppliers invoice(commercial invoice) includes the cost of the goods and the freight to send them to a certain destination. The shipper/supplier pays for everything up to and including the freight to a said port, with the first charges to the consignee/buyer being the terminal charges at the arrival port.
What are the Pro’s and Con’s of shipping CIF?
If the consignee/buyer knows exactly what costs they will have to pay on arrival then these terms are fairly straight forward. The shipper/supplier with arrange for the cargo to be shipped without the buyer having to deal with anyone. Once the goods land at destination the suppliers agent will contact the Consignee/buyer and arrange onwards movement of the cargo including clearance and delivery. CIF Terms are used quite successfully when it comes to FCL shipments, this is due to the fact the shipping line can act uniformly which prevents any fluctuations that may occur.
If you are not prepared there can be a lot of panic involved when the cargo arrives at destination. For example:
– There can be hidden charges, that come to light like CISF (China import service fee)
– Costs of certain services may be inflated
– There can be delays and further costs when the goods land if you are not prepared or have not assisted in clearing the cargo through customs in a timely manor
Many first time importers looks to their supplier to organise their first shipment and deliver the cargo to the uk, due to the cost and simplicity of what is promised to them. Unfortunately that is not always the case, as the consignee/buyer is then responsible for paying all of the UK cost in addition to further fees they were not made aware of.
What are Duties and Taxes?
When purchasing goods from outside of the EU, you must pay duties and taxies to UK Customs for your goods to be released into the country. Without these costs being paid your cargo can not be moved within the UK.
The amount of UK Duty that you are required to pay is dependent on the declared value of the goods (this is found on your commercial invoice) and the type of product that you’re importing. Each product is given a different duty rating/percentage. In order to find out how much duty is applicable you will need to visit www.gov.uk/trade-tariff.
VAT on an import
When a shipping quote says “plus UK Duty & VAT”, don’t think that the VAT is on the shipping price; it’s actually VAT on the taxable import; If you buy goods from outside the EU, you won’t pay VAT to the supplier, but that doesn’t mean you won’t have to pay it at all. The taxable import on which VAT is payable is the amount that you pay for your goods, plus the shipping cost, plus the UK Duty. You are effectively paying VAT on everything that it costs for you to buy the goods and get them into circulation in the UK.
Importing goods from outside the EU
When importing products from outside the EU, the below calculation is what you should use to estimate the VAT that you will have to pay once the goods are cleared through UK Customs.
VAT on Taxable Import = 20 % of ([Cost to buy your goods] + [UK Duty] + [Shipping Cost & Insurance])
Here’s an example. If goods are bought from China for £5000 and they are subject to £250 UK Duty and the shipping quote to your door is £500 then the VAT due would be approximately £1150:
VAT = 20 % of (£5000 + £250 + £500) = £1150
VAT when importing from within the EU
Goods traveling within the EU are not liable for VAT as it’s a single market. HMRC have more information about VAT within the EU, but the only VAT that a shipping company will charge when importing products from within the EU is VAT on the carriage itself.
What if I am already VAT registered?
If you’re VAT registered, you will need to use your EORI number that is linked to your VAT number. You still have to pay the VAT as detailed above, but you can claim back any VAT that you pay when importing goods (for your business) to the UK. You can do this through your normal VAT return under normal rules.
When your EORI number is declared to UK Customs, if linked to your VAT number it will alert HMRC who will generally send you a certificate (form C79) as evidence that you’ve paid import VAT. C79 certificates are issued monthly (not per shipment) and should be received around the 24th of the month following your import. HMRC will send the certificate to the address registered to your VAT number.
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