United Kingdom — Customs Valuation

UK customs valuation rules determine the value on which import duty and import VAT are calculated for goods imported into the United Kingdom. The legal framework rests on the Taxation (Cross-border Trade) Act 2018 (TCBTA 2018), enacted to establish a standalone UK customs regime following the United Kingdom's withdrawal from the European Union, and the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER), which came into force on 31 December 2020.

TCBTA 2018 section 5 incorporates the WTO Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (the "WTO Valuation Agreement" or "CVA") into UK law. The Valuation Agreement establishes six hierarchical methods for determining customs value, and UK legislation implements these methods sequentially: importers and HMRC must apply Method 1 (transaction value) unless it cannot be used, then proceed through Methods 2–6 in order, with the exception that Method 5 may be tried before Method 4 at the declarant's election.

Regulation 108 CIDEER sets out the core procedural framework. An importer determining the value of chargeable goods presented to Customs on import must:

Step 1: Attempt to determine value by applying Methods 1 through 3 in sequence until a method is found by which the full value of the goods can be readily determined. If none is found, proceed to Step 2.

Step 2: Apply Method 4 then Method 5, or reverse the order at the declarant's election. If neither applies, apply Method 6.

Method 1 valuation (transaction value) is defined in TCBTA 2018 section 16(2) and regulation 119 CIDEER as the general rule of valuation. It is the price actually paid or payable for the goods when sold for export to the United Kingdom, adjusted to include specified elements and exclude others. The transaction value may be rejected if HMRC is satisfied it is substantially lower than the full value of the goods, or if certain conditions exist (such as restrictions on use or disposal, or price contingencies that cannot be quantified).

Regulation 108(7) requires transaction value to be adjusted to include the value of items set out in regulations 111–113: commissions and brokerage (except buying commissions); the value of assists (materials, tools, or engineering supplied by the buyer); packing costs; transport and insurance to the place of importation; and royalties or licence fees where payment is a condition of sale and the fee relates to the goods being valued. Adjustments also exclude specified matters under regulation 108(8), including costs of construction, erection, or technical assistance incurred after importation; internal UK transport costs; and import duties and taxes.

Methods 2 and 3 (identical or similar goods) use the transaction value of identical or similar goods imported at or about the same time, subject to identification rules in regulation 122 CIDEER.

Method 4 (deductive value, regulation 121 CIDEER) bases value on the unit price at which the imported goods or identical or similar goods are sold in the United Kingdom in the greatest aggregate quantity, adjusted for post-importation costs and profit margins.

Method 5 (computed value, regulation 123 CIDEER) builds value from the cost of materials, fabrication, profit, and general expenses, plus transport and insurance to the UK.

Method 6 (fall-back method, regulation 126 CIDEER) applies such elements of Methods 1–5 and the principles of the WTO Valuation Agreement as are reasonable to determine the value immediately before importation.

HMRC published a comprehensive Customs Valuation Handbook on 25 June 2025, which provides detailed guidance on the application of each method, including treatment of related-party transactions, royalties, air freight, and retrospective price adjustments. While not legally binding, the Handbook reflects HMRC's interpretation of the law.

Since Spring Finance Bill 2023, TCBTA 2018 section 24 has been amended to authorise HMRC to issue Advance Valuation Rulings (AVRs), legally binding decisions on customs valuation questions valid for three years. The AVR regime, introduced to meet requirements under UK free-trade agreements (including CPTPP accession), provides certainty for importers on the valuation method and specific elements before goods are imported.

The same customs value used for import duty applies to import VAT (under Value Added Tax Act 1994 as amended by TCBTA 2018 Schedule 8) and to trade statistics for HM Revenue & Customs reporting.

Source: Taxation (Cross-border Trade) Act 2018, s. 5 & s. 24 Source: Customs (Import Duty) (EU Exit) Regulations 2018, Part 12 (regs. 108–126) Source: HMRC Customs Valuation Guidance (25 June 2025)

When an importer and its overseas supplier are related persons under UK customs law, HMRC may presume that the declared transaction value does not reflect the full customs value of the goods unless the importer can demonstrate to the contrary. This presumption arises frequently in multinational enterprises (MNEs) where an entity imports from its foreign parent company, subsidiary, or affiliate at an intercompany transfer price.

Regulation 128(1) of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER) defines related persons exhaustively. Persons A and B are related in any of the following cases:

(a) where B is a body corporate, A is an officer of B; (b) where B is a limited liability partnership, A is a member of B; (c) A and B are officers of the same body corporate; (d) A and B are members of the same limited liability partnership; (e) A is a partnership and B is a member of that partnership; (f) A and B are business partners; (g) A is an employee of B; (h) any person directly or indirectly owns, controls, or holds 5 percent or more of the outstanding voting stock or shares of both A and B; (i) one of them directly or indirectly controls the other; (j) both are directly or indirectly controlled by a third person; (k) together they directly or indirectly control a third person; or (l) they are members of the same family (spouse, ancestor, lineal descendant, brother, sister, spouse's brother or sister, or any of these persons' lineal descendants).

## The HMRC presumption and the burden on the importer

Regulation 108(9) CIDEER provides that HMRC may presume that where the buyer and seller of chargeable goods are related persons, in the application of Method 1 valuation (transaction value), the transaction value is not the full value unless HMRC are satisfied to the contrary. The practical effect is a reversal of the burden: an importer declaring Method 1 in a related-party transaction bears the onus of proving that the relationship did not influence the price.

HMRC's published guidance on Method 1 transaction value (updated 25 June 2025) explains the procedure. The guidance states: "If HMRC have grounds to consider that the price is affected by the relationship, HMRC will tell the importer what these grounds are. If a trader requests it, this will be in writing. The importer will have a reasonable opportunity to respond. If it is finally concluded that the relationship has influenced the price, Method 1 cannot be used." The importer must then proceed sequentially through Methods 2 (transaction value of identical goods), Method 3 (transaction value of similar goods), and onward until a method applies.

## Acceptable evidence to support transaction value

Importers commonly offer test-value evidence to rebut the presumption. HMRC guidance states that the importer may demonstrate that the transaction value of the imported goods closely approximates one of the following at or about the same time:

• the transaction value in sales to unrelated UK buyers of identical or similar goods for export to the United Kingdom;
• the customs value of identical or similar goods determined under Method 4 (deductive value, based on UK resale price less post-importation costs); or
• the customs value of identical or similar goods determined under Method 5 (computed value, built up from production cost, profit, and transport).

## Transfer-pricing studies — HMRC's position

HMRC guidance expressly addresses the use of transfer-pricing documentation. It states: "When considering whether a transaction is fully costed, HMRC may take account of additional information volunteered by the importer in the form of transfer pricing studies conducted by independent third parties. HMRC are not obliged to take this information into account."

In November 2022, HMRC published clarifying guidance stating that "in certain circumstances transfer pricing could not be used solely alone as verification of valuation method 1 (transaction value)," and that multinational enterprises "must justify their basis using the World Trade Organization framework and the corresponding UK customs valuation law." The clarification reflects HMRC's position that transfer-pricing methodologies, particularly margin-based approaches designed to allocate taxable income among jurisdictions, do not necessarily satisfy the WTO Valuation Agreement requirement to determine the price actually paid or payable for goods when sold for export to the United Kingdom at a specific point in time. Transfer-pricing studies may provide context, but they do not substitute for a customs test-value analysis.

## Practical implications for multinational enterprises

Because transfer-pricing and customs-valuation regimes are designed to serve different policy goals (allocation of taxable income among jurisdictions versus determination of duty liability), transfer prices that satisfy OECD arm's-length standards do not automatically satisfy the WTO/UK customs-valuation test. Importers in related-party transactions should:

• Declare the relationship on the UK customs declaration; the Customs Declaration Service (CDS) requires this disclosure.
• Document the test-value analysis contemporaneously, ideally before the first import, rather than retrospectively during an HMRC compliance visit.
• Consider an Advance Valuation Ruling (AVR) under TCBTA 2018 section 24 if the valuation methodology is complex or uncertain. Introduced by Spring Finance Bill 2023, the AVR regime provides legally binding decisions on customs valuation questions valid for three years.

When a related-party transaction value is rejected and the importer cannot apply Methods 2 or 3 (because no identical or similar goods were imported by unrelated parties at or about the same time), the importer will typically fall back to Method 4 (deductive value) or Method 5 (computed value). Both require detailed UK resale or production-cost data and often result in a higher dutiable value than the intercompany transfer price.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 108(9), reg. 128 Source: HMRC Customs Valuation Guidance — Method 1: Transaction value (25 June 2025)

Royalties and licence fees paid by an importer must be added to the transaction value (Method 1) when determining UK customs value if—and only if—both of the following statutory conditions are satisfied under regulation 113(1) of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER):

1. The royalty or licence fee relates to the goods being valued, and
2. Payment is a condition of sale of those goods in the agreement between the buyer and seller for the import of the goods into the United Kingdom.

This two-limb test tracks the WTO Valuation Agreement Article 8.1(c) framework and operates as a gatekeeper: a royalty that fails either condition is not added to customs value. In July 2025, regulation 113 was amended by the Customs (Miscellaneous Amendments) Regulations 2025 to clarify that the royalty may be payable by the buyer "either directly or indirectly"—closing a technical ambiguity where a buyer's UK affiliate, rather than the buyer itself, made the royalty payment to a third-party licensor.

## The "relates to the goods" limb

HMRC guidance (updated 25 June 2025) explains that the first question is "the true reason for the additional payments." A royalty relates to the imported goods when the assigned right resides wholly or partly in those goods as imported. Rights that may trigger inclusion under regulation 113 include:

• Patents, designs, and manufacturing know-how used to produce the goods;
• Trademarks, logos, or copyrighted images embodied in or affixed to the goods;
• Technical information or research-and-development contributions supplied by the seller and incorporated into the imported product's design or function.

The royalty does not relate to the imported goods—and is excluded under HMRC guidance—when it represents:

• Charges for the right to reproduce the imported goods in the United Kingdom (for example, a franchise fee to replicate a product domestically using an imported master or template, where the reproduction right is shown separately from the price paid for the goods);
• Payments for the right to distribute or resell the imported goods in the UK, where such payment is not a condition of the original sale for import but rather a post-import commercial-distribution agreement.

When a royalty is paid partly for rights in the imported goods and partly for rights in post-import additions (for example, components added or software installed in the UK after importation), apportionment is mandatory. HMRC guidance states: "You can apportion the royalty payment between dutiable and non-dutiable elements after the goods are imported if they relate partly to" post-import activities. The basis for apportionment can often be found in the licence agreement or obtained from the licensor. If apportionment is not possible because the importer does not have the relevant information, Method 1 cannot be used and the importer must proceed sequentially to Method 2 (transaction value of identical goods) or beyond.

## The "condition of sale" limb

Regulation 113(1)(b) and HMRC guidance specify that royalties are paid as a condition of sale if:

• The seller or a person related to the seller requires the buyer to make the payment, or
• The payment is made to satisfy an obligation of the seller (for example, the seller's own licence-fee obligation to a third-party trademark owner, which the seller passes through to the buyer as a term of the sales contract).

The statutory language is "in the agreement between the buyer and seller for the import of the goods into the United Kingdom." HMRC guidance explains: "The goods cannot be sold to, or purchased by, the buyer without payment of the royalties or licence fees to a licensor." If the buyer can purchase and import the goods without paying the royalty—for example, where the royalty is payable under a separate commercial agreement unrelated to the import transaction—the condition-of-sale test fails and the royalty is excluded.

## Common fact patterns

Software imports. When the importer purchases hardware containing proprietary firmware or software for which a per-unit licence fee is paid to the software developer (whether the seller or a third party), the royalty relates to the goods and is typically a condition of sale, requiring inclusion in customs value. If the licence fee covers only a post-import right to upgrade or modify the software in the UK, the post-import element may be excluded.

Trademarked consumer goods. An importer of branded apparel or electronics bearing a registered trademark owned by the seller (or licensor to the seller) typically owes a royalty that relates to the goods (the trademark is embodied in the goods or their packaging) and is a condition of sale (the seller cannot lawfully sell trademarked goods to the buyer without the trademark licence). This royalty must be added. Conversely, a resale royalty—paid by a UK distributor to a brand owner for the ongoing right to market the goods in the UK after import, where the royalty is calculated as a percentage of UK retail sales and is not stipulated in the original import sales contract—is typically excluded as a post-import distribution fee rather than a condition of the import sale.

Research-and-development royalties. HMRC guidance states: "Most, if not all research and development royalty payments are to be included in the value for customs duty providing payment can be related wholly to the imported goods." When a buyer pays a royalty to the seller (or a related entity) to reimburse R&D costs incurred in developing the imported product's design or specifications, and the royalty is calculated per imported unit, both conditions are usually met.

## Relationship to "assists" under regulation 112

In some cases, the same intellectual-property contribution may be characterised as an assist (regulation 112 CIDEER) rather than a royalty. For example, when the buyer supplies the seller with proprietary tooling, designs, or engineering work free of charge or at reduced cost for use in producing the imported goods, the value of that contribution is added under regulation 112 as an assist. HMRC guidance states: "In some cases, the addition to the price actually paid or payable is made under Regulation 112(1) CIDEER as an assist. In these cases, it is not necessary to consider the possible addition to the price actually paid or payable under the terms of Regulation 113 CIDEER." The WCO Customs Valuation Compendium case studies 8.1 and 8.2 on the application of Article 8.1(b) (assists) and Article 8.1(c) (royalties) address this boundary.

## Timing and declaration

Royalty payments are usually made periodically (monthly, quarterly, or annually). Regulation 113(2) provides that "the value of the royalty or licence fee is, if it can be readily determined, the amount payable." When the royalty amount applicable to a specific shipment is not yet known at the time of import, the importer may apply for an HMRC valuation simplification under regulation 109(3) CIDEER, permitting declaration of a provisional customs value followed by a supplementary declaration once the royalty is quantified. HMRC's valuation simplification guidance (updated 25 June 2025) confirms that simplifications may be agreed "where items that must be added to, or left out of, the overall customs value cannot be quantified at the time of acceptance," and that the importer must propose a methodology and timeline (typically quarterly or annual true-up).

HMRC actively audits royalty arrangements, and failure to add royalties that satisfy both statutory conditions is a common trigger for post-clearance compliance checks and demand for underpaid duty.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 113 Source: HMRC — How to include royalties and licence fees in the customs value (25 June 2025) Source: HMRC Customs Valuation Guidance — Method 1: Transaction value (25 June 2025)

When an importer supplies materials, components, tooling, designs, engineering work, or development services to an overseas seller—whether free of charge or at a reduced cost—and those items are used in the production of the imported goods, the value of those assists must be added to the transaction value (Method 1) for UK customs-duty purposes under regulation 112 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER). This addition is mandatory even if the assist was provided without direct payment, because the seller's production cost has effectively been reduced by the buyer's contribution, and the WTO Valuation Agreement Article 8.1(b) framework (implemented by regulation 112) requires the full economic value of the transaction to be reflected in the customs value.

Regulation 112(1) CIDEER specifies that the following items must be included as elements of transaction value where the buyer of the goods provides them to the seller other than for full valuable consideration:

(a) materials, components, parts, and similar items incorporated in the imported goods; (b) tools, dies, moulds, and similar items used in the production of the imported goods; (c) materials consumed in the production of the imported goods; (d) each item listed in paragraph (2) which is provided outside of the United Kingdom in relation to the production or development of the goods.

Regulation 112(2) enumerates the paragraph (1)(d) items:

(a) engineering, development, artwork, design work, and plans and sketches; (b) research and development work.

The critical statutory condition is regulation 112(1)(d): the assist must be provided outside of the United Kingdom. If the engineering work, tooling fabrication, or R&D was undertaken within the UK, its value is not added to customs value under regulation 112. HMRC guidance (updated 25 June 2025) states: "The cost or value of these assists is to be included in the customs value of the imported goods unless the work involved was undertaken in the UK."

## Common categories of assists

Tooling — dies, moulds, jigs, and production equipment

When an importer supplies or pays for tools, dies, moulds, or production machinery to be used by the seller in manufacturing the imported goods, the cost of that tooling is an assist under regulation 112(1)(b). HMRC guidance explains: "An assist can involve equipment being supplied by or on behalf of the importer. These items are provided in order to facilitate the manufacture of the imported goods, for example tools, moulds, dies or processing machinery."

Valuation and apportionment. Regulation 112(4) provides that the value of an assist is:

• (a) where the buyer purchases the item, the sales price; or
• (b) where the buyer or a related person of the buyer produced the item, the cost to the buyer or related person of producing the item.

Regulation 112(5) permits apportionment: the value of an assist may be apportioned over the total volume of goods produced (or to be produced) using the assist, with an allowance for any items produced but not imported into the UK. HMRC guidance states: "The cost of tooling provided by, or on behalf of, the importer in connection with the imported goods must be included in the customs value. The costs may be apportioned over the total volume of goods imported or declared in full at the time of the first importation, providing the goods in question are liable to ad valorem duty at a positive rate."

Alternatively, the importer may choose to declare the full cost of the tooling on the first import entry on which ad valorem customs duty is paid, rather than apportioning across future shipments. HMRC guidance confirms: "Importers may experience difficulties in such an apportionment. The importer or declarant may opt to declare the full cost of the equipment on the first entry on which ad valorem customs duty is paid."

Engineering, design work, and development services

When the buyer supplies the seller with proprietary designs, engineering specifications, technical drawings, plans, sketches, or artwork—free of charge or at reduced cost—for use in producing the imported goods, the value of that work is an assist under regulation 112(2)(a). HMRC guidance states that regulation 112(2)(a) covers "engineering, development, artwork, design work, and plans and sketches."

Example (from HMRC guidance). A UK importer commissions design work from a third-party design house. The designs are then provided free of charge to the overseas manufacturer for use in producing wedding dresses imported into the UK. HMRC guidance states: "The designs produced by C are provided free of charge by A to B for use in the production of the wedding dresses. They are, therefore, an assist covered in Regulation 112(2)(b) CIDEER, and, as the design work is undertaken outside the UK, its value should be included in the customs value." (The reference to regulation 112(2)(b) in the guidance appears to be a typographical error; the correct statutory cite is regulation 112(2)(a), which enumerates design work.)

The value of the design assist is determined under regulation 112(4)(a): if the buyer purchased the design services, the value is the sales price the buyer paid to the design house.

Research and development (R&D)

When the buyer funds or supplies R&D work to the seller—whether as reimbursement for the seller's own R&D costs or as a separate contribution—the value of that R&D may be an assist under regulation 112(2)(b). HMRC guidance states: "Where research and development work is carried out within the UK and is being provided, directly or indirectly, by the buyer of the imported goods free of charge or at a reduced cost, the value of such work is not dutiable."

Conversely, when R&D work is carried out outside the UK in relation to the production or development of the goods, and the buyer provides it to the seller free or at reduced cost, the value is added under regulation 112(1)(d) and (2)(b).

HMRC guidance distinguishes R&D costs the buyer reimburses to the seller (which are assists if the work relates to the imported goods and is not separately compensated) from R&D charges that the buyer receives valuable consideration for (which are not assists). The guidance states: "However, if research costs are invoiced separately and the buyer does receive valuable consideration other than the goods, in return for meeting those costs, then such costs would not be dutiable. This may arise where the seller agrees to give the buyer the option to purchase, distribute or manufacture any products which may result from the seller's research activities."

## The "provided other than for full valuable consideration" condition

Regulation 112(1) applies only where the buyer provides the assist "other than for full valuable consideration." If the buyer sells tooling or design services to the seller at full market value, and that cost is already included in the price paid or payable for the imported goods, there is no separate addition required under regulation 112—the transaction value already reflects the full cost. However, when the buyer supplies the assist free of charge or at a price below its market value, regulation 112 requires the value (or the shortfall) to be added.

## Relationship to royalties (regulation 113)

In some cases, intellectual-property contributions that might appear to be royalties (regulation 113 CIDEER) are instead characterised as assists. HMRC guidance states: "In some cases, the addition to the price actually paid or payable is made under Regulation 112(1) CIDEER as an assist. In these cases, it is not necessary to consider the possible addition to the price actually paid or payable under the terms of Regulation 113 CIDEER." The WCO Customs Valuation Compendium case studies 8.1 and 8.2 address the boundary between Article 8.1(b) (assists) and Article 8.1(c) (royalties).

The practical distinction: an assist is a good or service supplied by the buyer to the seller for use in production; a royalty is a payment by the buyer to a licensor (who may or may not be the seller) for the right to use intellectual property embodied in the goods. Both are additions to transaction value, but under different statutory provisions.

## Valuation simplifications for assists

When the value of an assist cannot be readily determined at the time of import—for example, when tooling cost is to be apportioned over an uncertain production volume, or when the importer will not know the total number of units produced until the end of an accounting period—the importer may apply for a valuation simplification under regulation 109(3) CIDEER. HMRC guidance (updated 25 June 2025) explains that simplifications permit the importer to declare a provisional customs value and subsequently provide a supplementary declaration or reconciliation once the assist value is quantified.

An example from HMRC guidance: a UK importer provides specialist machinery to an overseas manufacturer free of charge. The importer knows the machinery's cost and expected lifespan but does not know the total volume of goods that will be produced. The importer applies to HMRC for a simplification, proposing to declare customs value at import without the assist addition, then provide HMRC with the apportioned assist value annually, a month after the accounting period ends, once the exact production volume is known. HMRC reviews the proposal and, if satisfied, authorises the simplification. The importer then submits the assist value data annually, and HMRC issues a supplementary duty demand.

Valuation simplifications are available only for Method 1 (transaction value) and may not be used for retrospective price adjustments (which are contractual re-negotiations of the price after import, not assists). Applications should be submitted by email to HMRC's Valuation Unit of Expertise, or to the Customer Compliance Manager for Large Business traders.

## Consequences of failing to declare assists

Failure to add the value of assists to declared customs value is a common trigger for HMRC post-clearance compliance checks. When HMRC identifies an undeclared assist during an audit, the importer is liable for underpaid duty on all prior entries for which the assist was used, plus potential civil penalties for inaccurate customs declarations. Because assists are often supplied under long-term supply agreements and used across hundreds or thousands of shipments, the aggregate duty exposure can be substantial.

Contemporary documentation is critical: importers should maintain records of the assist cost, the location where the work was performed (to demonstrate whether the "outside the UK" condition is met), the methodology for apportionment (if applicable), and evidence that the assist value was included in the declared customs value or covered by an HMRC-approved simplification.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 112 Source: HMRC Customs Valuation Guidance — Method 1: Transaction value (25 June 2025) Source: HMRC Customs Valuation Guidance — Valuation simplifications (25 June 2025)

Method 4 (deductive value) determines customs value by working backwards from the price at which the imported goods are resold in the United Kingdom to unrelated buyers, deducting post-importation costs, profit margins, and commissions. It is the most common fall-back method when an importer cannot use Method 1 (transaction value)—typically because the buyer and seller are related persons and HMRC has rejected the declared transaction value under regulation 108(9) CIDEER, or because the price is subject to contingencies that cannot be quantified—and cannot apply Methods 2 or 3 (transaction value of identical or similar goods) because no such goods were imported by unrelated parties at or about the same time.

Regulation 123 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER) and regulation 124 CIDEER set out the statutory framework. Method 4 builds customs value from the unit price at which the imported goods, or imported identical or similar goods, are sold in the UK in the condition as imported, in the greatest aggregate quantity, at or about the time of importation, to persons who are not related to the seller. The importer must then deduct specified post-importation elements to arrive at the customs value immediately before importation.

Under regulation 108 CIDEER, Method 4 is the fourth method in the sequential hierarchy. However, the importer may elect to apply Method 5 (computed value) before Method 4 if the importer wishes. HMRC guidance (updated 25 June 2025) states: "Method 5 can be tried before Method 4 if an importer wishes as per Regulation 108 CIDEER." In practice, importers who have access to the overseas seller's production-cost data may prefer Method 5 (which builds value from cost of materials, fabrication, profit, and transport) over Method 4 (which requires UK resale data). If the importer does not elect to reverse the order, Method 4 is mandatory before Method 5.

## The "unit price in the greatest aggregate quantity" formula

Regulation 123(3)–(8) CIDEER prescribes a multi-step procedure to identify the unit price on which Method 4 is based:

Step 1: Identify all sales of the imported goods or identical or similar imported goods that satisfy the following conditions:

• sold in the UK;
• sold in the condition as imported (or, if not sold in that condition, sold after processing—subject to restrictions below);
• sold at the time of, or within a reasonable time period of, the importation of the chargeable goods into the United Kingdom (regulation 123(3), as amended by the Customs (Miscellaneous Amendments) Regulations 2025, which came into force 16 July 2025);
• sold to persons who are not related to the persons from whom they buy such goods (regulation 123(4));
• sold at the first commercial level after importation at which such sales take place.

Step 2: Aggregate the quantity of goods sold at each distinct unit price. The unit price at which the greatest number of units is sold is the unit price for Method 4. HMRC guidance (updated 25 June 2025) explains: "In order to arrive at the sale in the greatest aggregate quantity, the importer can add together the number of items sold at each price. The largest number of items sold at one price is the greatest aggregate quantity."

Example (from HMRC guidance): Goods are imported and sold to unrelated buyers at three prices depending on quantity purchased: £85, £90, and £95, with sales volumes in the ratio 10:8:7. The greatest aggregate quantity is 10 units at £85. The unit price for Method 4 is therefore £85, not the higher prices at which fewer units were sold.

Step 3: Apply the mandatory deductions under regulation 123(9)–(10) CIDEER to arrive at the customs value.

## "Within a reasonable time period" — the temporal window

The July 2025 amendment to regulation 123(3) replaced the previous fixed "90 days" window with the phrase "within such period as an HMRC officer considers reasonable of, the importation of the chargeable goods into the United Kingdom." HMRC guidance (updated 25 June 2025) states: "The term 'within a reasonable time period' is interpreted in Regulation 118A CIDEER. Ideally sales should have taken place as close as possible to the date of entry to free circulation of the goods to be valued. The scope for flexibility will depend on market conditions and sudden fluctuations in price."

The amendment aligns Method 4 temporal requirements with Methods 2 and 3, which were similarly amended in July 2025. The practical effect is that HMRC has discretion to accept sales made beyond 90 days if market conditions were stable and the price did not fluctuate, or to require a narrower window if the goods are subject to volatile pricing (for example, commodities, fresh produce, or electronics with rapid depreciation).

## First commercial level and related-party exclusion

Regulation 123(4) CIDEER requires the unit price to be based on sales to persons who are not related to the persons from whom they buy such goods. HMRC guidance states: "Thus, sales to related parties are to be disregarded."

Regulation 123(5) specifies that the unit price must be based on sales at the first commercial level after importation at which such sales take place. HMRC guidance explains: "In addition, where for example there are sales to retailers and wholesalers, it is the sales to wholesalers which are to be taken into consideration." If the importer sells both to wholesalers and directly to retailers, only the wholesale sales are counted for Method 4 purposes—the first commercial level is the point at which the importer first releases goods into the UK distribution chain in arm's-length sales to unrelated parties.

Regulation 123(7) CIDEER provides that sales to a person who supplies assists (buyer-supplied goods or services under regulation 112 CIDEER) are also to be disregarded. HMRC guidance states: "Any sales to a person, who supplies 'assists', are also to be disregarded."

## Mandatory deductions to arrive at customs value

Once the unit price in the greatest aggregate quantity is identified, regulation 123(9) CIDEER requires the importer to deduct the following elements to arrive at the customs value:

(a) Either:

• (i) the commissions usually paid or agreed to be paid, or
• (ii) the addition usually made for profit and general expenses,

in connection with sales in the UK of imported goods of the same class or kind;

(b) the usual costs of transport, insurance, and associated costs incurred in the UK;

(c) UK customs duties and import taxes payable on importation of the goods.

Regulation 123(10) CIDEER provides that the importer may deduct actual profit and general expenses (rather than "usual" profit and general expenses under regulation 123(9)(a)(ii)) only if those figures are in line with those usual for sales in the UK of imported goods of the same class or kind. HMRC guidance (updated 25 June 2025) states: "The actual profit and general expenses can be deducted unless the figures are out of line with those usual for sales in the UK of imported goods of the same class or kind."

"Usual" profit and general expenses. HMRC guidance explains that the term "usual" has not been defined in the law, but "for administrative purposes, it is to be taken to mean consistent with the normal range of margins for profit and general expenses of unrelated importers trading in imported goods of the same class or kind, as those to be valued, and at the same commercial level as that at which the importer is operating." The importer must provide evidence—typically industry benchmarks, trade-association data, or a sample of comparable importers' financial statements—to demonstrate that the deduction is "usual."

"Goods of the same class or kind." HMRC guidance states: "The term 'goods of the same class or kind' means goods which fall within a group or range of goods produced by a particular industry or sector of industry. It includes identical and similar goods. The goods need not have been imported from the same country as the goods being valued."

## Goods sold after processing in the UK

If the imported goods are not sold in the UK in the condition as imported—for example, because the importer assembles, finishes, or incorporates them into a larger product before resale—regulation 123(6) and (11) CIDEER permit the importer to base the Method 4 value on the price at which the goods are sold after processing, provided the importer deducts the value added by the processing carried out in the UK.

However, regulation 123(8) CIDEER imposes two exclusions: the importer cannot use the post-processing resale price if:

(a) the goods lose their identity in the processing (for example, raw materials consumed and transformed into a finished product), unless the importer can accurately and easily establish the value added by the processing; or

(b) the imported goods keep their identity but form a minor part of the goods sold in the UK.

HMRC guidance (updated 25 June 2025) states: "If the goods are sold after processing, the value added by the processing carried out in the UK must be deducted." The burden is on the importer to quantify the UK value-added element; if the importer cannot do so "accurately and easily," Method 4 cannot be used and the importer must proceed to Method 5 or Method 6.

## Evidence and declaration requirements

Regulation 123 CIDEER and HMRC guidance require the importer to produce contemporaneous documentary evidence of the UK resale transactions. HMRC guidance (updated 25 June 2025) states: "The importer must produce with the import entry one of the following showing the unit price in the greatest aggregate quantity: [sales invoices, sales statements, or evidence sufficient to enable HMRC to trace the relevant sales]."

When the goods have not yet been sold at the time of importation—common in consignment imports or when the importer will resell the goods over several months—the importer must declare a provisional customs value and request release of the goods against a deposit. HMRC guidance (updated 24 June 2025) explains: "As you cannot establish the customs value until the goods have been sold you must request release against a deposit." Once sufficient quantities have been sold to establish the unit price in the greatest aggregate quantity, the importer must send copies of the sales invoices and a copy of the calculations to the National Import Duty Adjustment Centre (NIDAC) for final settlement. "Duty will either be taken to account, refunded, or called for."

Fresh fruit, vegetables, and cut flowers — special procedure. For importers of fresh fruit and vegetables and cut flowers on consignment, HMRC permits the account sales procedure. The importer does not have to wait until all the goods are sold; once the importer has sold enough to arrive at the unit price, the importer must produce evidence to NIDAC. HMRC guidance states: "For importations of fresh fruit and vegetables and cut flowers, the importer does not have to wait until all the goods are sold to establish the Customs value. Once the importer has sold enough to arrive at the unit price, they must send copies of the sales invoices and a copy of the calculations to the National Import Duty Adjustment Centre (NIDAC)." The importer must produce the evidence within 90 days of importation under regulation 124 CIDEER and the Notices made under CIDEER.

Alternatively, for certain fresh fruit and vegetables meeting the descriptions and commodity codes in the HMRC-published list, the importer may use the Simplified Procedure Values (SPV) scheme under regulation 124 CIDEER, which bases customs value on wholesale prices published by HMRC every 14 days, rather than actual UK resale data.

## Practical difficulties and HMRC audit focus

HMRC guidance acknowledges that "it is accepted that there are practical difficulties in applying the deductive method." The guidance lists common challenges:

• an importer imports a wide range of products for sale in the UK to unrelated customers in different quantities and at varying prices;
• the importer's business covers a wide range of activities in addition to importing and selling the goods to be valued (for example, a manufacturer-importer who imports components and sells both the components and finished goods);
• the goods to be valued are not sold in the same state but are subject to major processing after importation.

HMRC audits of Method 4 declarations focus on three areas:

1. Whether the importer can substantiate the "greatest aggregate quantity" calculation with sales invoices, ledger extracts, or accounting records for the relevant period.
2. Whether the deduction for profit and general expenses is "usual" within the meaning of regulation 123(9)(a)(ii), or whether the importer is deducting its own atypically high margin.
3. Whether the importer has correctly identified the "first commercial level" and excluded related-party sales or sales at a second tier (for example, retail sales when wholesale sales exist).

Failure to substantiate these elements is a common trigger for HMRC to reject Method 4 and require the importer to apply Method 5 (computed value) or Method 6 (fall-back method).

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 123–124 Source: HMRC Customs Valuation Guidance — Method 4: Deductive method (25 June 2025) Source: HMRC — Valuing imported goods using Method 4 (deductive method) (24 June 2025)

Method 5 (computed value) determines customs value by building up from the overseas seller's actual production costs, fabrication expenses, profit, and general expenses, plus transport and insurance to the United Kingdom. It is the only valuation method that requires the importer to obtain detailed cost and accounting data from the seller—typically accessible only when the buyer and seller are related persons under regulation 128 CIDEER or have a close commercial relationship. For this reason, Method 5 is the least frequently used of the six valuation methods, but it is the most precise when the seller's cost data are available and reliable.

Regulation 125 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER) sets out the statutory framework. Method 5 is the fifth method in the sequential hierarchy under regulation 108 CIDEER, but the importer may elect to apply Method 5 before Method 4 (deductive value) if the importer wishes. HMRC guidance (updated 25 June 2025) states: "Method 5 can be tried before Method 4 if an importer wishes as per Regulation 108 CIDEER." Importers who have access to the seller's production-cost data may prefer Method 5 over Method 4 (which requires UK resale data and is often more volatile).

## The statutory build-up formula

Regulation 125(2) CIDEER prescribes a five-element build-up:

(a) Total the following costs, charges, and amounts:

• (i) the cost of materials, components, parts, and any other processing of the goods;
• (ii) the costs of transport and insurance of the goods, up to the time the goods are imported into the United Kingdom;
• (iii) loading and handling charges of the goods, up to the time the goods are imported into the United Kingdom;
• (iv) the amount of expenses usually incurred in enabling comparable goods to be sold in the place of export of the goods; and
• (v) the amount of profit usually arising on a sale of comparable goods in the place of export of the goods.

(b) Total the costs, charges, and amounts in sub-paragraph (a); and

(c) That total is the Method 5 valuation (the customs value).

The build-up is anchored to the place of export—that is, the country from which the goods are shipped to the UK. The seller's actual production cost (materials, components, and processing) is combined with the seller's usual profit and general expenses for comparable goods sold for export, then transport and insurance to the UK are added.

## Element (i): Cost of materials, components, parts, and processing

Regulation 125(2)(a)(i) requires the importer to produce the seller's actual cost of materials, components, parts, and any other processing (fabrication, assembly, finishing) of the goods being valued. HMRC guidance (updated 25 June 2025) explains that this element covers "the cost of materials, components, parts, and any other processing of the goods."

The cost must be the seller's actual cost, not an industry average or estimate. If the seller manufactures the goods in-house, the cost includes raw materials, intermediate components, direct labor, and factory overhead allocable to the production run. If the seller purchases finished or semi-finished goods from a third party and adds value (for example, repackaging, labeling, or quality-control inspection), the cost includes the purchase price plus the value-added processing.

Regulation 125(2)(a)(i) does not include profit or general expenses; those are added separately under regulation 125(2)(a)(iv) and (v).

## Elements (ii) and (iii): Transport, insurance, loading, and handling to the UK

Regulation 125(2)(a)(ii) and (iii) CIDEER require the importer to add the costs of transport and insurance of the goods, up to the time the goods are imported into the United Kingdom, and loading and handling charges up to that time. This is the same addition required under Method 1 (transaction value) for goods sold on an ex-works or FOB basis: the customs value must include all costs to bring the goods to the first point of entry in the UK.

The relevant time is importation into the United Kingdom—that is, the point at which the goods cross the UK customs frontier and are presented to HMRC. For goods arriving by sea, transport and insurance to the UK port of discharge are included; post-discharge inland transport within the UK is excluded. For goods arriving by air, transport and insurance to the UK airport of arrival are included.

## Elements (iv) and (v): Usual profit and general expenses for comparable goods in the place of export

Regulation 125(2)(a)(iv) and (v) CIDEER require the importer to add two amounts:

• the amount of expenses usually incurred in enabling comparable goods to be sold in the place of export, and
• the amount of profit usually arising on a sale of comparable goods in the place of export.

The statutory language is "usually"—not the seller's actual profit on this particular sale, but the usual profit and general expenses for comparable goods sold for export from the same country. HMRC guidance (updated 25 June 2025) explains: "The usual profit and general expenses are those for sales of goods of the same class or kind as the goods being valued, which are made by producers in the country of exportation for export to the UK."

"Comparable goods" has the same meaning as in Method 4: goods of the same class or kind as those being valued. HMRC guidance states that the term covers goods "which fall within a group or range of goods produced by a particular industry or sector of industry. It includes identical and similar goods." The goods need not be from the same producer, but they must be from the same country of exportation.

"General expenses" typically include selling, general, and administrative (SG&A) costs: sales commissions (other than buying commissions, which are excluded under Method 1), marketing, overhead, and administrative costs allocable to export sales.

The importer must provide evidence that the profit and general-expense amounts are usual for the industry and product class. HMRC guidance states that acceptable evidence includes:

• the seller's commercial accounts for comparable goods sold for export to the UK;
• industry benchmarks or trade-association data for producers in the country of exportation;
• a sample of comparable producers' financial statements showing profit margins and SG&A ratios for export sales of the same class or kind of goods.

If the importer cannot substantiate that the profit and general expenses are usual, or if the seller's actual margin is atypically high or low and the importer cannot provide comparable-industry data, Method 5 cannot be used and the importer must proceed to Method 6 (fall-back method).

## When Method 5 is available — the seller-cooperation requirement

HMRC guidance (updated 25 June 2025) explains the practical constraint: "This method is rarely used because of the difficulties in obtaining the relevant documentation." Method 5 requires the importer to produce original documents showing the costings for the production, packaging, insurance, transport, loading and handling of the goods, up until their entry into the UK; and documents showing the profit margin of the seller.

The WTO Valuation Agreement Article 6 (implemented by regulation 125 CIDEER) requires that Method 5 be based on the seller's actual production cost, but the seller is under no legal obligation to provide this information to the buyer. HMRC guidance states: "The seller is not obliged to provide the information required for Method 5. If the seller refuses to provide the information, or if the importer cannot verify the accuracy of the information provided, Method 5 cannot be used."

For this reason, Method 5 is almost always used only in related-party transactions where the buyer and seller are part of the same corporate group and the buyer has access to the seller's cost-accounting records. HMRC guidance (example scenario, updated 25 June 2025) illustrates: "Company B (UK importer) and Company A (overseas seller) are related. The transaction value has been rejected by HMRC under regulation 108(9) CIDEER because the relationship influenced the price. Methods 2 and 3 cannot be used because Company B does not import identical or similar goods under a Method 1 valuation. Company B has chosen to use Method 5 before attempting Method 4. As Company A and B are related, Company B is able to provide the required documentation, obtained directly from Company A, needed for valuation under Method 5."

An unrelated arm's-length seller typically will not disclose production-cost and profit data to a customer, both for commercial confidentiality reasons and because the seller has no legal duty to do so. In such cases, the importer cannot use Method 5 and must fall back to Method 4 (if UK resale data are available) or Method 6.

## Election to use Method 5 before Method 4

Regulation 108 CIDEER provides that after Methods 1, 2, and 3 cannot be used, the importer must apply Method 4 (deductive value) unless the importer elects to try Method 5 first. HMRC guidance (updated 25 June 2025) states: "You may try Method 5 (computed value) before Method 4 if you want to."

The election is made by the importer on the customs declaration at the time of import. On the Customs Declaration Service (CDS) import entry, the importer declares the valuation method code: "5" for Method 5. If Method 5 cannot be used (because the seller refuses to provide cost data, or the importer cannot verify the data), the importer must then apply Method 4 (if not already tried) or Method 6.

Importers who have access to the seller's production-cost data and prefer a cost-based valuation over a resale-based valuation (Method 4) typically elect to use Method 5 first. The advantage of Method 5 over Method 4 is that it is anchored to the seller's actual costs at the time of production, whereas Method 4 is based on the UK resale price (which may be subject to market fluctuations, promotional discounts, or the importer's own margin volatility).

## Evidence and declaration requirements

Regulation 125 CIDEER and HMRC guidance (updated 25 June 2025) require the importer to produce contemporaneous documentary evidence of the seller's costs, profit, and expenses. HMRC guidance states that the importer must produce "original documents showing the costings for the production, packaging, insurance, transport, loading and handling of the goods, up until their entry into the UK; and documents showing the profit margin" of the seller.

Acceptable evidence includes:

• the seller's cost-accounting records for the production run, showing materials cost, labor cost, and factory overhead allocable to the goods being valued;
• commercial invoices from the seller's suppliers for materials and components;
• the seller's commercial accounts or audited financial statements showing the profit margin and general expenses for export sales of comparable goods;
• transport and insurance invoices from the freight forwarder or carrier, showing the cost to bring the goods to the UK;
• an independent accountant's certification of the cost build-up, if the importer and seller are related and HMRC requests third-party verification.

The importer must submit the evidence with the import entry or make it available to HMRC on request. HMRC guidance (updated 25 June 2025) explains: "If you use Method 5, you must be able to provide HMRC with evidence to support the valuation." Failure to provide the evidence, or provision of evidence that HMRC considers unreliable, is grounds for HMRC to reject Method 5 and require the importer to apply Method 4 or Method 6.

## HMRC audit focus and common rejection grounds

HMRC audits of Method 5 declarations focus on three areas:

1. Whether the seller's production-cost data are actual costs or estimates. Method 5 requires the seller's actual costs for the goods being valued, not standard costs, budgeted costs, or industry averages. If the seller provides only a cost estimate or a pro-forma cost breakdown, HMRC may reject Method 5.

1. Whether the profit and general expenses are "usual" for comparable goods in the place of export. If the seller's declared profit margin is significantly higher or lower than industry norms for export sales of comparable goods, HMRC may challenge the addition under regulation 125(2)(a)(v) and require the importer to provide industry benchmarks or comparable-producer data. If the importer cannot do so, HMRC may reject Method 5.

1. Whether the importer has verified the accuracy of the seller's data. Because the seller is under no legal obligation to provide cost data, and because the seller has a commercial incentive to understate costs (to reduce the UK customs value and duty liability), HMRC may request that the importer demonstrate how it verified the seller's figures—for example, by cross-checking invoices from the seller's suppliers, by engaging an independent accountant to audit the seller's cost records, or by comparing the seller's declared costs to prior shipments of the same goods. If the importer cannot demonstrate verification, HMRC may reject Method 5 on the ground that the data are unreliable.

Common rejection grounds for Method 5:

• The seller refuses to provide production-cost data, or provides only summary figures without supporting invoices or cost-accounting records.
• The seller provides cost data but the importer cannot verify their accuracy.
• The profit and general-expense amounts are not supported by the seller's commercial accounts or industry benchmarks, or are out of line with "usual" margins for comparable goods.
• The seller's cost data include post-importation costs (for example, UK inland transport, UK marketing expenses, or UK warranty costs) that must be excluded under the WTO Valuation Agreement Article 6 framework.

## Relationship to Method 1 related-party test-value analysis

When an importer in a related-party transaction (regulation 128 CIDEER) declares Method 1 (transaction value) and HMRC challenges the price under regulation 108(9) CIDEER, the importer may offer Method 5 computed value as one of the test values to demonstrate that the transaction value closely approximates the full value of the goods.

HMRC guidance on related-party transactions (updated 25 June 2025) states that the importer may demonstrate that the transaction value of the imported goods closely approximates "the customs value of identical or similar goods determined under Method 5 (computed value, built up from production cost, profit, and transport)." If the related-party transaction value (the intercompany transfer price) is within a reasonable margin of the Method 5 computed value for the same goods, HMRC may accept the transaction value under Method 1, and the importer need not fall back to a secondary method.

This use of Method 5 as a test value is distinct from using Method 5 as the declared valuation method. When used as a test value, the importer still declares Method 1 on the customs entry, but provides Method 5 cost data to HMRC to support the acceptability of the Method 1 price. When Method 5 is the declared valuation method, the importer declares Method 5 on the entry and the customs value is the regulation 125(2) build-up, not the transaction value.

## Consequences of failing to substantiate Method 5

If the importer declares Method 5 on the customs entry but cannot produce the required cost data, or if HMRC determines that the cost data are unreliable or that the profit and general expenses are not "usual," HMRC will reject Method 5 and require the importer to apply the next method in sequence.

If the importer has not yet tried Method 4, the importer must apply Method 4 (deductive value based on UK resale price) or, if Method 4 cannot be used (because there is no sale to an unrelated person in the UK), proceed to Method 6 (fall-back method).

If the importer elected to use Method 5 before Method 4 and Method 5 is rejected, the importer must then try Method 4. HMRC guidance (updated 25 June 2025) states: "You cannot use Method 5 if you do not have the information. If you've already unsuccessfully tried Method 4 (deductive method), you must now use Method 6 (fall-back method)."

Failure to substantiate Method 5 does not trigger a civil penalty if the importer proceeds in good faith to the next method. However, if the importer repeatedly declares Method 5 without the required cost data, or if HMRC determines that the importer declared Method 5 to delay duty payment or conceal the true value, HMRC may impose a civil penalty for an inaccurate customs declaration and may require the importer to provide a comprehensive guarantee (bond) for future entries.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 125 Source: HMRC Customs Valuation Guidance — Method 5: Computed method (25 June 2025) Source: HMRC — Valuing imported goods using Method 5 (computed value) (3 November 2022)

Method 6 (fall-back method) is the last-resort customs valuation approach in the UK, applied only when none of the prescribed methods—Methods 1 (transaction value), 2 (identical goods), 3 (similar goods), 4 (deductive value), or 5 (computed value)—can reasonably determine the customs value. This is codified in regulation 126 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER), aligning with Article 7 of the WTO Customs Valuation Agreement.

Under Method 6, HMRC and the declarant must use “reasonable means” consistent with the principles and general provisions of the valuation rules, but are not bound by the strict requirements of Methods 1–5. The objective is to estimate a value as close as possible to what would be derived under those main methods. Method 6 does not allow unfettered discretion; any departure from the earlier methods must remain within the framework of the WTO Agreement and the statutory prohibitions set out in regulation 126(2)-(3).

Prohibited bases under Method 6:

• UK selling price, except as allowed under Method 4 (deductive value)
• Price of goods intended for export to a third country (not the UK)
• Arbitrary or fictitious values
• Production costs or assembly costs not covered by Method 5

Any valuation using these forbidden grounds will be rejected by HMRC. Method 6 is not simply a “best guess”—but a carefully constructed approach applying the principles of the preceding methods as far as possible.

Acceptable approaches: In practice, a Method 6 valuation often adapts elements from earlier methods. For instance, if similar goods' transaction data are incomplete, or if neither UK resale price (Method 4) nor the seller’s detailed cost information (Method 5) is available, HMRC may accept a value derived from adjusted market data or partial transactional comparables, as long as the calculation is fully documented and explained on the customs declaration. Any approach must be consistent with the principles set out in the customs legislation and the WTO Valuation Agreement.

Importers are required to keep full documentary evidence for Method 6 declarations, including whatever industry data, third-party price lists, or correspondence supports the estimated value. HMRC reserves particular scrutiny for these cases, as there is a higher risk of subjective or unsupported values.

A Method 6 basis should always be identified and justified in the customs declaration, and it may only be used after all other methods are exhausted.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 126 Source: HMRC Customs Valuation Guidance — Method 6: Fallback method (updated 14 April 2026)

A retrospective price adjustment (RPA) arises when the price actually paid or payable for imported goods is modified after importation, commonly due to transfer pricing adjustments, rebates, or year-end bonuses under intercompany agreements. Under UK law, the legal baseline is CIDEER regulation 119, which defines customs value as the price actually paid or payable for the goods when sold for export to the United Kingdom, including all amounts paid or to be paid, directly or indirectly, as can be readily ascertained. This aligns with Article 1 of the WTO Customs Valuation Agreement.

When a post-import price adjustment occurs—whether increasing or decreasing the original invoice value—the declared customs value must, in principle, be revised to reflect the final, actual amount paid or payable. HMRC guidance confirms that importers cannot ignore such adjustments: if the adjustment is provided for in the contractual terms existing at import, and directly relates to those imports, the customs value should be amended accordingly. The guidance references both upward and downward adjustments. For upward adjustments (e.g., additional payment made to the seller), the importer is expected to notify HMRC, correct the customs declaration, and pay any additional duty. For downward adjustments (e.g., rebates or reductions), the importer may file a claim for repayment, typically using form C285, provided an audit trail links the adjustment to the original entry—though HMRC emphasizes the need for contemporaneous contracts and clear, direct linkage to the imported goods.

To qualify, HMRC stresses that the price change must result from a mechanism specified in the original sales agreement (such as a retrospective transfer pricing adjustment or pre-agreed volume rebate), not an ad hoc or post-hoc renegotiation. Adjustments must "relate to the goods as imported" and be foreseen at the time of import. HMRC may disregard changes that lack such contractual underpinning or were not contemplated at the point of entry.

Procedurally, HMRC’s published guidance instructs importers to correct errors or make adjustments through the Customs Declaration Service (CDS) or, for repayments, via C285 with supporting documentation—including contracts, correspondence, and evidence the final price was not known at import, but now can be ascertained. Where the guidance is silent or ambiguous on supporting documentation specifics, HMRC generally requires evidence sufficient to demonstrate reason for, and calculation of, the adjustment.

Alignment with transfer pricing documentation may be relevant for multinational importers, though HMRC’s guidance does not explicitly require that transfer pricing and customs filings precisely match; importers may prudently ensure consistency to avoid audit challenges.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 119 Source: HMRC Customs Valuation Guidance – Retrospective price adjustments and price review clauses

Method 1 (transaction value) remains the foundation for UK customs valuation, governed by regulation 119 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER), reflecting Article 1 of the WTO Customs Valuation Agreement.

Definition and Core Application: Under regulation 119(2) CIDEER, the transaction value is “the price actually paid or payable for the goods when sold for export to the United Kingdom,” encompassing all direct and indirect payments as a condition of sale. Application requires:

• A sale for export to the UK (reg. 119(1));
• No price influence from a buyer-seller relationship, unless HMRC is satisfied otherwise (reg. 108(9));
• A determinable price without non-quantifiable restrictions (reg. 119(3), (5)).

HMRC will reject a transaction value that is unjustifiably lower than expected unless the importer can justify the basis, and the relationship and all facts must be disclosed.

2026 Update — Transport and Advance Valuation Rulings: In April 2026, HMRC updated its Method 1 guidance to clarify how transport costs included in total freight charges must be handled:

• The customs value must include costs for transport, insurance, and handling up to the UK place of importation, even if these are bundled within a single invoice charge (for example, under CIF/CFR terms). Any post-import UK transport/insurance is still expressly excluded.
• Importers must apportion bundled freight costs if some domestic transport or delivery charges are present, ensuring only those incurred to the frontier are included in the customs value. Failure to do so risks HMRC rejecting declared values.

Additionally, HMRC guidance now explicitly frames Method 1 within the wider context of the Advance Valuation Rulings (AVR) regime:

• Importers uncertain about transaction value (e.g., due to complex supply chains, potential royalties/assists, or related party arrangements) can apply for an AVR under amended TCBTA 2018 section 24 for binding certainty on treatment.
• AVR applications and processes are described in greater detail, with a reference to the updated AVR manual. AVRs are valid for three years unless revoked or amended for legislative or fact changes.

Inclusions (must add):

• Commissions (excluding bona fide buying commissions), containers, packaging, assists (buyer-supplied components/design/tooling), transport/insurance to UK border.

Exclusions:

• Post-import assembly, erection, UK internal transport/insurance, UK duties and taxes.

Where the value depends on later adjustments, the declaration must be amended once the final amount is known, provided the original contract foresaw the adjustment.

Material changes since last update:

• April 2026: clarified HMRC treatment of transport/freight inclusions and exclusions within bundled charges;
• Explicit AVR connection added, with cross-reference to the regime.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 119 Source: HMRC Customs Valuation Guidance — Method 1: Transaction value (updated 14 April 2026) Source: HMRC Customs Valuation Guidance — updates log (April 2026)

When a UK importer cannot calculate the final customs value at the time of import—commonly because royalty payments, assists (tooling, engineering, R&D), or other additions cannot be quantified until after entry—regulation 109 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER) permits use of a provisional customs value through the "valuation simplification" process. This mechanism, implementing Article 13 of the WTO Valuation Agreement, allows HMRC to accept a best-estimate customs value for entry release, with reconciliation via supplementary declaration once the full information is available, provided HMRC agrees to the approach in advance.

Under regulation 109 CIDEER, an importer must:

• Notify HMRC and explain why the customs value cannot be determined at the time of import.
• Propose the estimated provisional value, the elements that are outstanding (e.g., future royalties, cost of assists, retrospective price adjustments), and an expected methodology for calculating the final amount.
• Obtain HMRC's agreement to use a simplification before entry. Regulation 109 does not grant an automatic right; it enables HMRC to allow entry subject to the conditions it deems appropriate—including the requirement to submit a supplementary declaration and to settle any duty shortfall (or claim a refund) when the final amount becomes determinable.

According to HMRC’s published guidance on valuation simplifications (as updated 25 June 2025), applications are made by email to the Valuation Unit of Expertise, or through the Customer Compliance Manager for Large Business traders. The guidance lists typical grounds such as assists to be apportioned over uncertain production runs, royalties based on later sales, and transfer pricing adjustments not finalised until after import. The importer must explain their estimation and reconciliation plan; HMRC will agree deadlines for submission of reconciled values in supplementary declarations after entry. The guidance notes HMRC may require a financial guarantee or deposit during the provisional period.

Failure to obtain HMRC agreement, or to submit the required supplementary declaration within the agreed period, may result in compliance action under CIDEER, including correction of underpaid duty and possible withdrawal of the simplification facility. These procedural consequences are set out in HMRC guidance; penalties will follow the general customs enforcement framework where inaccurate declarations lead to underpayments.

Importers should note that simplifications are available only when a statutory addition (e.g., assists, royalties) or the final price is genuinely unquantifiable at import. If the value can be determined but is not, or if the uncertainty does not relate to a statutory addition or adjustment foreseen in CIDEER, HMRC may reject the application.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 109 Source: HMRC Customs Valuation Guidance — Valuation simplifications (as updated 25 June 2025)

Method 2 (identical goods) and Method 3 (similar goods) are the second and third steps in the UK’s customs valuation hierarchy, applied when Method 1 (transaction value) cannot be used—most commonly when there is no sale for export or when the buyer and seller are related and the relationship is deemed to have influenced price. These methods are codified in Part 12 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER), specifically regulations 120–122, reflecting Articles 2 and 3 of the WTO Valuation Agreement. Their purpose is to ensure a fair value based on actual, arm's-length import transactions of matching or comparable goods.

Method 2 — Identical Goods (reg. 120)

Under regulation 120 CIDEER, the customs value is determined by reference to the transaction value of "identical goods" imported into the UK at or about the same time as the goods being valued. "Identical goods" means goods produced in the same country which are the same in all respects, including physical characteristics, quality, and reputation. Minor differences in appearance that do not affect value may be disregarded. The method may only be used if the comparison transaction occurred between unrelated parties and the goods were exported to the UK at or near the same time as the goods in question.

Method 3 — Similar Goods (reg. 121)

If there are no identical goods, Method 3 applies. "Similar goods" are goods produced in the same country as the goods being valued, which, while not alike in all respects, have like characteristics and component materials, enabling them to perform the same functions and be commercially interchangeable. The price of similar goods imported at or about the same time serves as the basis for customs value, with quality, reputation, and trademark status taken into account.

Procedural Rules, Ineligibility, and Adjustments

• Timeframe: Under the July 2025 CIDEER amendment, the previous rigid “90 days” limit was replaced: goods must be imported "within such period as an HMRC officer considers reasonable" relative to the goods being valued (regulations 120(4A), 121(4A)). HMRC guidance (June 2025) notes the window is flexible, considering market volatility and product shelf-life.
• Country and producer: Only transactions involving goods produced in the same country count. If identical/similar goods are produced by a different person, their values are used only if no such goods of the same producer are available (see regulations 120(3), 121(3)).
• Related-party sales exclusion: Values from sales between related parties may only be used if such prices closely approximate those for unrelated parties (regulation 122(3)).
• Adjustments: The transactional value must be adjusted for differences in commercial level, quantity, or costs (e.g., transport, insurance), as required by regulation and guidance. HMRC scrutinizes the justification for these adjustments.
• Order of application: Method 2 must be considered before Method 3. If neither can be reliably used, the process continues to Method 4 or, by declarant election, Method 5.

Evidence and Pitfalls

Importers must document comparable import transactions—typically customs entries, invoices, and shipping details—and be ready for HMRC scrutiny on the claimed comparability and time window. The burden of demonstrating that goods qualify as identical or similar, and that adjustments are fair, lies with the declarant. HMRC will reject attempts to rely on unrelated third-country prices or to cherry-pick high or low comparables without supporting evidence. Failure to apply these methods correctly will lead HMRC to require fallback to Method 4 or 5.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, regs. 120–122 Source: HMRC — Valuing imported goods using Method 2 (identical goods) Source: HMRC — Valuing imported goods using Method 3 (similar goods)

Advance Valuation Rulings (AVRs) allow UK importers (and agents with standing) to obtain a written, binding decision from HMRC on the valuation methodology or specific customs value element that will be applied to future importations of defined goods under specified circumstances. The regime is legally grounded in the Taxation (Cross-border Trade) Act 2018 (TCBTA), section 24 (as amended by Spring Finance Bill 2023), and detailed in the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER), especially regulations 54A–54N.

Who can apply and what can an AVR address?

Any person with a direct or indirect interest in importation—importers, declared agents, or representatives with evidence of interest—may submit an application. The AVR is limited solely to a customs valuation question (e.g., correct valuation method under the hierarchy; addition or exclusion of a royalty, assist, or specific cost; application of a particular transaction structure). AVRs do not cover tariff classification or origin—this is not overtly barred by statute, but is reflected in the scope of the AVR application form and HMRC procedural guidance. (Source: HMRC guidance.)

Application contents and HMRC process

Applications must be made to HMRC in the form they prescribe and specify:

• A detailed description of the goods, supply chain, and commercial arrangements;
• All relevant contracts, sample invoices, and supporting documents;
• The valuation question and proposed method, referencing statutory authority;
• Evidence, if seeking a non-transaction value method, of why earlier methods cannot be used;
• The applicant’s EORI number.

HMRC has legal authority under reg. 54D to require further information, and the formal period for issuing a decision is suspended until all information is provided (reg. 54E). Applications may be rejected if incomplete or not genuinely prospective.

Binding effect and period of validity

AVRs are binding on both HMRC and the holder for three years from notification, unless revoked, amended, or withdrawn in accordance with statute (TCBTA 2018 s.24(3); CIDEER reg. 54L). The AVR applies only to goods and circumstances “corresponding in all material respects” to those described in the application and ruling. If the facts change, or the legal framework shifts, HMRC may modify or terminate the AVR.

Amendment, revocation, and withdrawal

Under regulations 54K–54M CIDEER, HMRC can amend or revoke an AVR if there is a material change in the law, a change in relevant facts, or it is discovered that the AVR was based on incorrect or incomplete information. Revocation or amendment cannot be backdated to affect goods already released unless there was fraud or false statements. Where law or facts change after goods are entered, HMRC will give notice of the action and the reasons.

Practical consequences and evidentiary notes

Holding an AVR shields the holder from post-clearance revaluation for declarations matching the ruling, provided all facts were disclosed and applicable at import. Where a revocation or amendment takes effect after entry, liability is generally not retroactive except in fraud/omission. Statute is silent as to processing times or backlogs: recommendations to apply early arise from practice, not law. As of June 2026, AVRs comprise a growing share of complex valuation queries, but there is no statutory right to expedited treatment.

The previously cited URL for the main statutory source (https://www.legislation.gov.uk/uksi/2018/1248/part/5A) is now dead. Despite repeated targeted gov.uk and legislation.gov.uk searches, a direct and stable replacement could not be found as of 2024-06-11. The statutory text remains valid, but the citation is unrepaired until UK authorities restore or update the official hosting structure for Part 5A.

Source: Taxation (Cross-border Trade) Act 2018, s. 24 Source: Customs (Import Duty) (EU Exit) Regulations 2018, regs. 54A–54N Source: HMRC — Apply for an Advance Valuation Ruling (as of 2026)

Transport, insurance, and delivery costs are among the trickiest inclusions and exclusions in UK customs value determinations, with substantial compliance risk if the wrong costs are reported under Method 1 (transaction value). The UK applies the international standard: only costs incurred to bring goods to the UK place of importation are included; any costs incurred after UK customs clearance are strictly excluded.

Under regulation 119(4) of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER), the customs value must include:

• The cost of transport of the goods to the UK port or airport of entry
• The cost of loading, unloading, and handling up to the place of importation
• The cost of insurance covering carriage to the UK place of importation

Any internal UK transport, unloading, handling, or insurance beyond the place of importation is explicitly excluded from customs value. The statute defines the "place of importation" as the port, airport, or border where goods first enter the UK customs territory for free circulation (regulation 2).

For shipments invoiced on CIF, CFR/C&F, or FOB terms:

• CIF (Cost, Insurance, Freight): The invoice price typically already includes eligible overseas transport and insurance, which forms the basis of customs value. If additional pre-import costs exist (e.g., inland freight to foreign port), those must also be added if not already captured.
• FOB (Free On Board): The FOB invoice price must be adjusted to include actual costs of overseas freight, insurance, and loading from port of export to the UK, even if paid separately by the importer. Any UK-side transport or insurance is excluded.

If the invoice price includes both eligible and ineligible elements (e.g., seller charges for both delivery to UK port and further inland delivery), the importer must apportion costs and exclude non-dutiable amounts from the customs value. If unable to accurately determine or apportion these amounts, HMRC may reject the declared value (HMRC Guidance, 2026).

Where transport, insurance, or delivery costs cannot be quantified at import—for example, if rates are variable—regulation 109 CIDEER allows an importer to apply for a provisional valuation simplification, submitting a reconciliation once the actual figures are available.

The rules are echoed for Methods 2–6: regulations 120(4), 125(2)(ii–iii), and related HMRC guidance require adding only costs to the UK frontier, never post-import UK domestic movement.

Practical pitfalls include overlooking post-import haulage on DDP/DAP terms that must be excluded, or failing to add freight paid by the importer on FOB/CFR terms.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, reg. 119, reg. 120, reg. 125 Source: HMRC — Delivery costs to include in the customs value (updated 15 April 2026)

Importers must preserve comprehensive records supporting each customs value declared in the United Kingdom for a statutory minimum period of four years, as prescribed in regulation 149 of the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER). This recordkeeping duty is central to HMRC’s risk-based audit regime and is actively enforced in valuation compliance checks and post-importation audit procedures.

Scope of required documentation Importers (and any person acting on their behalf, such as customs agents) must retain, for every import entry, “all documents and records” enabling HMRC to verify the customs value for the goods in question. Regulation 149(2) CIDEER lists the records to include:

• Contracts, purchase orders, sales agreements, and invoices describing terms of sale and payment;
• Evidence of payments made/to be made (bank transfer records, credit notes, etc.);
• All correspondence, pricing schedules, and side agreements between buyer, seller, and third parties affecting price;
• Royalty/licence agreements, assist supply contracts, or other agreements relevant to additions under regulations 112–113;
• Valuation statements, cost build-ups, allocation methodologies for assists, royalties, transfer pricing or retropsective adjustments;
• Commercial shipping documents (bills of lading, transport, insurance, and delivery invoices to the UK frontier);
• Advance Valuation Rulings (AVRs) and correspondence with HMRC.

The documentary burden extends to all supporting evidence for elements added (or excluded) from customs value under the CIDEER framework: assists, royalties, provisions for future adjustments, or Method 2-5 comparables. There is a positive duty to “make available” these records if requested by an HMRC officer (regulation 150).

Electronic records and CDS compliance Records may be retained electronically provided they are accessible for inspection and capable of being reproduced in readable form. With the post-Brexit rollout of the UK’s Customs Declaration Service (CDS), importers should ensure CDS import data and supporting documentation can be cross-referenced and exported upon HMRC request. Failure to retain or produce records on demand is an administrative offence, subject to penalties.

Time limits and enforcement The minimum statutory retention period is four years from the date of import. For commodities with complex adjustment cycles (e.g. yearly transfer pricing reconciliation), HMRC recommends records be kept until all compliance activities are closed. Regulation 150(3) CIDEER empowers HMRC to require records to be produced physically (at a place or in a manner specified by HMRC) and to take copies.

Failure to keep or make available proper documentation may result in assessment of additional duty, refusal of deferred accounting, or penalty under the Customs (Contravention of a Relevant Rule) Regulations 2003.

Source: Customs (Import Duty) (EU Exit) Regulations 2018, regulations 149–150 Source: HMRC Customs Valuation Guidance — record keeping requirements (2025)

Misdeclaration of customs value in the United Kingdom attracts strict civil penalties, with potential criminal consequences in cases of fraud, under a suite of regulations implemented by HMRC. The cornerstone penalty framework is the Customs (Contravention of a Relevant Rule) Regulations 2003 (“CCRR 2003”, S.I. 2003/3113), which remains operative post-Brexit in tandem with the Taxation (Cross-border Trade) Act 2018 (TCBTA) and the Customs (Import Duty) (EU Exit) Regulations 2018 (CIDEER).

## Legal basis for penalties

Regulations 4, 5, and Schedule 1 of CCRR 2003 enumerate relevant rules, including failure to:

• declare full and accurate customs value;
• adjust for required additions (assists, royalties, transport to UK frontier);
• submit records on demand (regulation 149 CIDEER);
• make supplementary declarations after provisional entries (regulations 109, 110 CIDEER).

Breach of any relevant rule triggers liability for a penalty unless the person satisfies HMRC there was “a reasonable excuse” (regulation 13 CCRR 2003). The penalty regime is strict-liability: under- or over-declaring value—even in error—creates exposure unless evidence shows all due diligence was exercised.

## Penalty amounts

For most customs-value contraventions, the default civil penalty is £2,500 per contravention (regulation 7 and Schedule 1 CCRR 2003). Where HMRC identifies a continuing failure (such as repeated misdeclaration over multiple entries), each entry may be penalised separately. For late submission of valuation-related supplementary declarations (regulation 110 CIDEER), the penalty is also £2,500 per failure.

For serious breaches—particularly where misdeclaration is found to be deliberate or fraudulent, or involves substantial revenue loss—HMRC may refer the case for criminal prosecution under section 167 of the Customs and Excise Management Act 1979, exposing offenders to unlimited fines or imprisonment up to seven years for evasion.

## Mitigation, appeal, and recent HMRC enforcement

HMRC retains discretion to reduce, remit, or not impose a penalty where a trader can demonstrate “reasonable excuse” or self-disclosed the error before discovery (regulation 13). Typical mitigating factors include prompt voluntary disclosure, evidence of robust valuation processes, and provision of full documentation. Where mitigation is denied, appeals may be made to the tax tribunal under TC(BTA) s.25.

HMRC routinely audits customs value compliance. In 2025, HMRC published a notice highlighting increased post-clearance checks focused on non-inclusion of assists and under-reported royalties. Notices of penalty assessment issued under CCRR 2003 far outnumber full criminal proceedings; however, where large-scale fraud rings or repeated, wilful non-compliance are found, HMRC has pursued successful criminal prosecutions (see: “Operation Barcode”, 2024 HMRC press release).

Failure to address valuation errors after notification can escalate the penalty and trigger removal of customs authorisations (like AEO or valuation simplifications).

Source: Customs (Contravention of a Relevant Rule) Regulations 2003, SI 2003/3113 Source: Customs (Import Duty) (EU Exit) Regulations 2018, regs. 109, 110, 149 Source: HMRC — Civil penalties for customs contraventions