A Guide For Cross-Border E-Commerce Sellers

With Black Friday fast approaching, many e-commerce sellers are preparing for one of the busiest shopping periods of the year. Shoppers are also gearing up, often looking beyond their home markets for better deals or unique products. Buying imported goods has become a normal part of online shopping, especially when overseas retailers offer lower prices, wider selection, or exclusive brands not available locally.

Selling goods across borders sounds simple enough. In practice, it rarely is. The rules around VAT and customs can be confusing, and there’s no single way to handle all the taxes and duties that apply. Even the regimes designed to simplify trade often make things harder, since e-commerce sellers must first learn how each one works.

This article breaks down how VAT and customs duties work when selling and shipping goods to the UK. The example is simple: goods are located in the United States, sold to a customer in the UK, and shipped there after the sale.

How VAT and Customs Duties Work in the UK

When an e-commerce seller ships goods from abroad to a UK buyer, two taxes may apply: VAT and customs duties (sometimes called import duties). Both serve different purposes.

Import duties are designed to protect local industries. They make imported goods more expensive, helping domestic producers compete. These duties are a permanent cost and importers can’t reclaim them. Duties must be paid before goods clear customs, although the UK also allows monthly payments instead of paying per shipment.

VAT, on the other hand, is a consumption tax. It ensures buyers pay tax at the same rate whether they buy locally or from abroad. Businesses can generally reclaim VAT they pay on purchases.

VAT can arise at two stages: when the sale takes place (“supply VAT”) or when goods enter the UK (“import VAT”). Supply VAT is charged at checkout by the seller. Import VAT is paid by the importer when goods clear customs—either directly at the border or through postponed VAT accounting, which lets importers declare and recover the tax on their VAT return.

Who Handles VAT and Customs Duties

Both customs duties and import VAT are paid by the importer of record — the party legally responsible for ensuring that goods meet UK import requirements. Not everyone can act as the importer of record. In the UK, the importer must generally have a local presence, such as an office or another permanent establishment.

To avoid UK compliance obligations, foreign e-commerce sellers often designate the UK buyer as the importer of record under “Delivered at Place” (DAP) terms. Under DAP, the seller delivers the goods to the border, while the buyer handles customs clearance, duties, and taxes. Sales under “Delivered Duty Paid” (DDP) terms, where the seller acts as the importer and must account for customs duties and import taxes, are less common as DDP exposes foreign sellers to legal, financial, and operational risks that many e-commerce businesses are unprepared to manage effectively.

Designating the UK buyer as the importer does not mean that the buyer has to handle import formalities. In business-to-consumer (B2C) sales, couriers often take care of import paperwork and payments on the consumer’s behalf. Sellers usually collect estimated duties and taxes at checkout and reimburse the courier, but the buyer remains listed as the importer of record in all documentation. In business-to-business (B2B) sales, the UK buyer usually manages the import process and accounts for both VAT and customs duties.

While customs duties and import VAT are handled by the importer, the importer is not responsible for supply VAT. Supply VAT is collected by the seller at the point of sale, and the seller must remit it to the tax authority through VAT returns.

Key Factors That Determine Your VAT and Customs Obligations

Who must account for VAT and customs duties—and when—depends on three key factors: whether the shipment is worth more or less than £135, whether the sale is made through an online marketplace, and whether the buyer is a business or a consumer. The type of product can also matter, as goods such as alcohol or tobacco, which are subject to excise taxes, follow different rules.

The £135 threshold is central. Shipments valued at £135 or less are treated as low-value consignments. They are exempt from customs duties but still subject to VAT. The threshold applies to the total value of the consignment, not to individual items, and excludes transport and insurance costs unless they are included in the price and not listed separately.

Selling to UK Businesses: Reverse Charge and Postponed Accounting

When selling to VAT-registered businesses in the UK, foreign sellers generally have no UK VAT obligations. The VAT-registered buyer accounts for any VAT due, so the seller does not need to register in the UK. This applies regardless of the shipment’s value, although the method of accounting for VAT depends on that value.

For low-value shipments, VAT is handled through the reverse charge procedure. The buyer reports both the VAT due and the corresponding input tax on the same VAT return. The e-commerce seller should issue an invoice clearly stating that the reverse charge applies, reminding the buyer that they are responsible for accounting for the VAT. Low-value shipments are not subject to customs duties, so no duty needs to be accounted for.

For higher-value shipments, import VAT and customs duties become payable when the goods enter the UK. The UK buyer, acting as the importer of record, can either pay VAT at the border or use postponed VAT accounting to declare and recover it on their VAT return.

Selling to UK Consumers: What Happens at Checkout and Customs

When selling directly to UK consumers, the value of the shipment determines whether, when, and how VAT and customs duties must be accounted for.

For shipments worth more than £135, import VAT and customs duties are due when the goods enter the UK. If the sale is made under DAP terms, the foreign e-commerce seller has no UK compliance obligations. The consumer, as the importer of record, is responsible for paying import VAT and customs duties. In practice, though, sellers often arrange for couriers to handle customs and tax payments on the buyer’s behalf. The seller collects estimated costs at checkout—sometimes by including them in the price—and passes them to the courier, who pays HMRC.

For low-value shipments worth £135 or less, e-commerce sellers must register for UK VAT and collect it at the point of sale. This VAT is treated as “supply VAT,” not import VAT, even though the goods are imported. The seller remits this VAT through a UK VAT return. No further import VAT or customs duties are due at the border, though simplified customs declarations are still required.

If the sale is made directly to the customer, the overseas seller must register with HMRC and account for VAT. If an online marketplace facilitates the sale, the marketplace becomes responsible for collecting and remitting the VAT. In either case, the party responsible for the VAT must issue a full VAT invoice at checkout.

The Future of the £135 Threshold

HMRC data shows how rapidly the low-value goods sector is growing. The trade value of low-value imports reached £5.9 billion in the fiscal year ending April 2025—a 53% increase from the previous year. Shipments from China alone accounted for more than half of all small parcels sent to the UK, worth about £3 billion.

In 2025, the government launched a review of the £135 customs duty exemption threshold amid rising concern that the UK market is being “flooded” with cheap imports, particularly from China. The current regime has also been open to abuse through practices such as undervaluing goods or splitting shipments into multiple low-value consignments to stay below the threshold.

If the review results in the removal of the £135 exemption, the UK would be aligning with broader international trends. The European Union plans to abolish its €150 duty exemption as part of upcoming customs reforms, and the United States already scrapped its $800 duty exemption threshold in August 2025.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.