UK customs valuation — what goes into the customs value of your goods (6 methods Method 1-6)

UK customs value is the price paid or payable for goods in a sale for export to the UK, adjusted for specific items added (transport to the UK border, insurance, royalties, tooling, assists, selling commissions) and items deducted (transport inside the UK, actual discounts, purchase interest). HMRC requires an importer to pick a valuation method from the Method 1-6 hierarchy — and only when Method 1 (transaction value) is not applicable may you move to Method 2, then 3, down to Method 6 (last resort). Legal basis: gov.uk/guidance/working-out-the-customs-value-of-your-imported-goods and HMRC Notice 252, at the European level UCC art. 70-74 (Regulation 952/2013), and globally the WCO Valuation Agreement (GATT art. VII).

This article is the pillar of the "Customs valuation" cluster — if you're after a deeper dive on royalties, tooling and assists, jump to the separate spoke Royalties, tooling and assists — what to add to customs value (detailed article in preparation). Related fundamentals: HS code and commodity code (because duty rate, which you multiply by the customs value, depends on the code), EORI number, PVA and Importer of Record (because the IOR is responsible for the correctness of the valuation).

Method 1 — transaction value

Method 1 is the price actually paid or payable for the goods in a sale for export to the UK — plus additions, less deductions. It is the default method and, according to HMRC data, it is used by around 95% of import declarations. Legal basis: UCC art. 70, UK implementation: HMRC Notice 252 section 2.

When Method 1 MUST NOT be used

Method 1 is not applicable — and you must move to Method 2 — if any of the four situations described in UCC art. 70(3) applies:

1. Restrictions on disposal or use — the buyer cannot freely dispose of the goods (e.g. may sell only in one country, only as gifts, or may not resell them at all). Exceptions: restrictions required by law, geographical resale restrictions, restrictions that do not materially affect value.
2. Price subject to conditions that cannot be quantified — the price depends on something that cannot be valued in money (e.g. the buyer must supply other goods to the seller in exchange, price depends on the buyer's future sales).
3. Proceeds clause without adjustment — part of future profits from resale reverts to the seller, and this return is not captured as an addition under Method 1.
4. Related-party price influenced by the relationship — buyer and seller are related (transfer pricing) and the relationship influenced the price. Here HMRC allows a circumstances of sale test or an arm's length test (comparison with Method 2/3). Details in Notice 252 section 4.

What you ADD to the invoice price (UCC art. 71)

On the invoice you see, for example, £10,000 for 1,000 branded t-shirts FOB Shanghai. That is not the customs value. You add:

• Selling commissions and brokerage — but NOT buying commission (see below).
• Cost of containers and packaging, if treated as one with the goods.
• Cost of packing (labour and materials).
• Assists — the value of goods/services supplied to the seller free of charge or at a discount, pro rata to the number of units. Typical assists: moulds, tooling, dies, components, engineering/design carried out outside the UK, product-specific know-how.
• Royalties and licence fees — if they are a condition of sale and relate to the imported goods (e.g. a royalty paid to the brand owner for the right to sell t-shirts bearing its logo).
• Proceeds clause — the value of future resale profits returned to the seller.
• Transport, insurance and handling to the point of entry into the UK (freight to UK port + marine/air insurance + loading costs at the port of export). In the UK, valuation is CIF-based — even if your invoice is FOB, you must add freight and insurance.

What you DEDUCT (UCC art. 72, Notice 252 section 3)

• Transport inside the UK (from port to warehouse) — if itemised separately on the freight forwarder's invoice and documented.
• UK duty and UK VAT — duty and VAT paid in the UK do not form part of the duty base.
• Post-import costs — installation, assembly, servicing, training ordered with the contract but performed after import.
• Financial interest — if the seller extended trade credit and interest is clearly itemised in the agreement.
• Buying commission — commission for an agent acting solely in the buyer's interest.
• Actual discounts granted before import — you may not deduct a discount that is contingent on future events.

Method 2 — identical goods

You use Method 2 when Method 1 is out — you take the customs value previously accepted by HMRC for identical goods exported to the UK at the same or a similar time (usually ±45 days). Basis: UCC art. 74(2)(a), Notice 252 section 8.

"Identical" means: same physical characteristics, same quality, same reputation, same country of production. Minor differences in external appearance are not disqualifying. Brand or model differences are disqualifying. Small differences in consignment size allow a pro-rata adjustment of the customs value, but must be documented.

Typical use cases

• Gift / sample — there is no sale, so Method 1 is out. If the same model was previously imported commercially — Method 2.
• Consignment stock — goods sent to a UK consignment warehouse (title remains with the seller until onward sale). Method 2 based on a prior normal sale of the same model.
• Related-party import with disqualifying influence — arm's length test against Method 2 for an independent import of an identical model.

Formal conditions

1. The benchmark customs value must have been previously accepted by HMRC (or by another EU customs authority if the importer documents this themselves).
2. Same country of origin (important: Method 2 does NOT accept identical goods from another country, even if the producer is the same).
3. Same producer (preferred); a different producer is permitted if there are no data from the same one.
4. Same level of trade (wholesale vs retail) and same volume scale of the transaction — or make an adjustment.

Method 3 — similar goods

If there are no identical goods, you move to similar — goods with the same commercial characteristics and interchangeable function, from the same country. Basis: UCC art. 74(2)(b), Notice 252 section 9.

"Similar" is a broader category than "identical". A different brand is fine, provided function and quality are commercially interchangeable. Example: Nike Air Max vs Adidas Ultraboost — these are similar goods (both are premium running trainers at comparable prices), but NOT identical.

Checklist for similar goods

• Same country of production.
• Same function and commercial use.
• Comparable quality and market reputation.
• Interchangeability for the end user (test: would buyer A see product B as an alternative?).
• Similar retail price and level of trade.

In practice, the EasyClearance team uses Method 3 most often for: samples of premium products whose exact equivalents have not yet been imported, and for re-imported goods where the original documentation has been lost.

Method 4 — deductive value

Method 4 starts from the UK resale price and deducts all post-import costs and margin — leaving the customs value. Basis: UCC art. 74(2)(c), Notice 252 section 10.

Method 4 procedure

1. Take the unit resale price in the UK in as-imported condition (unprocessed) to an independent buyer. This must be the most frequently sold price at a similar time (90 days ± from import).
2. Deduct the importer's margin and overheads in the UK (commission or mark-up typical for the sector — HMRC accepts documented industry averages).
3. Deduct duty and import VAT paid in the UK.
4. Deduct transport inside the UK and other post-import costs (warehousing, handling).
5. The result = customs value.

Method 4 challenge: HMRC challenges a "typical margin" without market documentation. EC recommends the importer has a benchmark ready (e.g. Companies House filings of 3 competitors, Retail Price Index for the category, or ONS data) before going down the Method 4 route.

Method 5 — computed value

Method 5 builds customs value from the bottom up — production costs + producer's profit + transport to the UK. Basis: UCC art. 74(2)(d), Notice 252 section 10.

Method 5 components

1. Cost of materials and production — raw materials, components, direct labour, indirect labour, equipment depreciation.
2. Overheads — marketing, administration, management (general and administrative) — apportioned per unit.
3. Profit — typical for producers of the same kind of goods in the country of export (industry benchmark).
4. Transport, insurance and handling to the point of entry into the UK — same as in Method 1.

Why Method 5 is rarely used: it requires access to the producer's books. A Chinese factory selling through an intermediary rarely opens its production costs to a British importer. In practice, EC uses Method 5 mainly in two situations:

• Intra-group transfer from a parent company with open TP reports and certified accounts.
• Custom manufacturing where the price is not a market selling price but a cost-plus calculation.

Method 6 — fallback value (last resort)

Method 6 is the "last resort" — you flexibly apply one of Methods 1-5 with relaxed conditions, but only when none of the previous methods is possible. Basis: UCC art. 74(3), Notice 252 section 11.

What is NOT allowed under Method 6 (UCC art. 74(3) second sentence)

• Minimum prices / minimum values.
• The price of goods on the domestic market in the country of export.
• The higher of two alternative values ("the higher of two values").
• Production costs other than those calculated under Method 5.
• Resale prices in a country other than the UK (e.g. a resale price in Germany cannot be the starting point for a UK customs value).
• Arbitrary or fictitious values.

Examples of permitted flexibility

• Method 2 with an extended time window (instead of ±45 days — ±90 days).
• Method 3 with goods from another country (normally the same country is required).
• Method 4 with a longer resale window (instead of 90 days — 180).
• Method 5 with a simplified calculation where full books are not available but the main components are documented.

Method 6 requires a written justification to HMRC — why Methods 1-5 are not applicable and how the base fallback method was chosen. For every Method 6 case, the EC team prepares a 3-5 page dossier with documentation: correspondence with the supplier confirming that data for Method 5 are not available, an email or meeting record with the importer stating the absence of identical/similar goods in HMRC archives, an industry benchmark from ONS or Companies House, and a step-by-step calculation showing how the final value was reached. Without this dossier, HMRC typically challenges Method 6 at audit and proposes its own — usually higher — valuation.

The global foundation for valuation rules is the WCO Valuation Agreement (formally the Agreement on Implementation of Article VII of GATT 1994). The EU and the UK have transposed it into national law — the EU through UCC art. 70-74, the UK additionally through the Taxation (Cross-border Trade) Act 2018 and Notice 252. The Method 1-6 rules are therefore identical in the UK, the EU and some 160 other WTO countries. Differences mainly concern the administrative layer (which documents HMRC asks for versus another authority) and rulings (Advance Valuation Ruling in the UK vs BVI in the EU).

When to use which method — decision table

Decision tree — how to choose a method in 5 minutes

The practical decision flow the EasyClearance team runs with every new client during a compliance audit:

1. Is there a sale of goods for export to the UK? A commercial invoice with pricing. NO → go to step 5.
2. Are buyer and seller related? YES → run the circumstances of sale test (is the price the same an independent buyer would get?). If it fails → step 5.
3. Does the price have uncalibrated conditions, restrictions on disposal, or a proceeds clause without adjustment? YES → step 5. NO → go to step 4.
4. Method 1 is applicable. Add the additions (freight, insurance, royalties, assists, selling commissions, packing), deduct the deductions (UK inland, duty, VAT, post-import, buying commission), work out the customs value.
5. Method 2 — do you have a history of an identical item (same model, producer, country) imported ±45 days? YES → apply Method 2. NO → step 6.
6. Method 3 — is there a similar good (a comparable substitute from the same country)? YES → Method 3. NO → step 7.
7. Method 4 — will the goods be resold in the UK and do you have a typical industry margin benchmark? YES → Method 4. NO → step 8.
8. Method 5 — do you have access to the producer's books (costs + profit)? YES → Method 5. NO → step 9.
9. Method 6 — fallback. Prepare a justification for HMRC on why 1-5 are out, choose the nearest base method, and apply it with relaxed conditions.

Frequently asked questions about UK customs valuation

Do freight and insurance always form part of the customs value?

Yes — but only the portion up to the UK border. The UK applies CIF-based valuation, so sea/air transport + insurance to the UK port is added. Transport inside the UK (from port to warehouse) is deducted. Basis: UCC art. 71(1)(e), Notice 252 section 3.

Royalties — when to add them, when not to?

Add them if the royalty is a condition of sale and relates to the imported goods (e.g. a trademark on the product). Don't add them if the royalty relates to marketing technology, distribution know-how, or a sales method — anything that is not embedded in the product itself. Details in our spoke on royalties/tooling/assists (detailed article in preparation).

Is a transfer pricing study enough as arm's length evidence?

Not on its own. HMRC uses a TP study as one input in its assessment, but it also requires evidence that the valuation method chosen for customs purposes aligns with OECD. Important: customs valuation and transfer pricing are two different regimes — HMRC acceptance of TP for Corporation Tax does not automatically mean acceptance as a Method 1 customs value.

What about VAT — is it part of the customs value?

No. UK VAT does not form part of the duty base. And VAT charged in the country of export should not appear on the export invoice either (it is zero-rated on export). If your invoice shows VAT, check whether the exporter has applied 0% VAT — a common error on first exports to the UK.

How does HMRC audit a valuation — what do they check?

Three levels: (1) post-clearance audit — spot check of documentation 3 years back, (2) system-based audit for larger importers — review of the entire valuation process, (3) investigation where fraud is suspected — up to 20 years back. HMRC checks: additions (are all in?), deductions (are they justified?), exchange rate, transfer pricing, assists, royalties.

Can I change the method after filing?

Yes — through the C285 procedure or voluntary disclosure. If you spot an error in a valuation (e.g. you forgot assists), report it to HMRC under the C285 procedure or via voluntary disclosure. Voluntary disclosure before an audit = lower or no penalty. An audit started before you disclose = full penalty of up to 100% of the duty.

Need a customs valuation compliance audit?

The EasyClearance team reviews client customs valuations against Methods 1-6, identifies missing additions (royalties, tooling, assists) and prepares documentation for HMRC audit. Typical return on investment: 1 hour of an EC audit = £5,000-£50,000 of avoided duty exposure.

chatWhatsApp +44 7404 091 503 callHelpline +44 7404 091503 Book a compliance audit

What to read next — related articles

• Royalties, tooling and assists — what to add to customs value (spoke) (detailed article in preparation)
• HS code — how to find and verify it (ISZTAR + HMRC)
• EORI number — how to obtain it in the UK and PL
• Postponed VAT Accounting (PVA) — how it works in the UK
• Importer of Record UK — who is responsible for valuation
• Duty refund in the UK — the C285 procedure

Disclaimer: This article is informational and does not constitute legal or tax advice, nor a binding HMRC interpretation. Customs value depends on the specific circumstances of a transaction — verify the valuation before filing against gov.uk guidance and HMRC Notice 252. For a binding interpretation, submit an Advance Valuation Ruling (AVR) application to HMRC.