Landed cost explained: the true cost of importing to the UK

When businesses compare overseas suppliers, they often compare unit prices. That is understandable, but it can be misleading. A product that is 10% cheaper at the factory can easily end up more expensive once it has been shipped, insured, cleared through customs and delivered. The figure that matters is the landed cost.

This guide explains what landed cost includes for goods imported into the UK, how each element is calculated, and how to use it to compare suppliers properly.

What is landed cost?

Landed cost is the total cost of getting a product from the supplier to your premises. It usually includes:

• Product cost: the price you pay the supplier.
• Freight: sea, air, road or rail transport to the UK.
• Insurance: cover for the goods while they are in transit.
• Import duty: a percentage of the customs value, set by the commodity code.
• Customs clearance and handling: broker, port and terminal charges.
• Final delivery: transport from the port or airport to your warehouse or customer.
• Other costs: such as inspection, testing, packaging changes, labelling or currency conversion.

Import VAT is usually shown separately. Most VAT-registered businesses can reclaim it, so it affects cash flow rather than final cost.

Step 1: Agree the price and the Incoterm

Start with the supplier’s price, and check which Incoterm it is quoted on. Incoterms are standard international trade terms that set out who pays for and is responsible for the goods at each stage. A price quoted on “ex works” (EXW) terms means you pay for everything from the factory gate. A “free on board” (FOB) price includes delivery onto the ship at the origin port, and a “cost, insurance and freight” (CIF) price also includes the sea freight and insurance to the destination port. Two quotations on different Incoterms cannot be compared until you add the missing costs.

Step 2: Add freight and insurance

Freight costs depend on the shipping method, volume, weight, route and season. Sea freight is usually much cheaper per unit for larger orders; air freight is faster but costs more. Cargo insurance is typically a small percentage of the value of the goods. Our freight and logistics coordination service compares these options for each shipment.

Step 3: Work out the customs value

Import duty and import VAT are calculated on the customs value of the goods. For UK imports this is normally the price paid for the goods plus the cost of transporting and insuring them to the UK border. Getting the customs value right matters: it is the base for both duty and VAT.

Step 4: Find the commodity code and duty rate

Every product has a commodity code that determines its duty rate. Rates vary widely between products, and the same product can attract a different rate depending on the country of origin, for example where a trade agreement applies. You can look up commodity codes and current rates using the UK Trade Tariff on GOV.UK. Classifying a product correctly is important; if you are unsure, ask a customs broker or HMRC for guidance.

Import duty = customs value × duty rate.

Step 5: Calculate import VAT

Most goods imported into the UK are subject to import VAT, usually at the standard rate of 20%, although some goods are charged at a reduced or zero rate. Import VAT is normally calculated on the customs value plus the import duty.

Import VAT = (customs value + duty) × VAT rate.

VAT-registered businesses can usually reclaim import VAT, and can use postponed VAT accounting to declare and recover it on the same VAT return instead of paying it upfront at the border, which helps cash flow.

Step 6: Add clearance, handling and delivery

Finally, add the costs of customs clearance (if you use a broker or agent), port or terminal handling charges, and transport from the port or airport to your premises. If you are importing goods into Great Britain for the first time, you will also need a GB EORI number.

A worked example

A business buys 1,000 units of a product from an overseas supplier on FOB terms.

In this example the factory price is £5.00 a unit, but the real cost of each unit on the warehouse shelf is about £6.33, around 27% more. Pricing the product on the factory figure alone would quietly wipe out much of the margin.

Using landed cost to compare suppliers

Once you calculate landed cost for each option, the comparison often changes:

• A cheaper supplier further away may cost more once freight is added.
• A supplier in a country with a lower duty rate for your product may come out ahead.
• A higher minimum order can lower the freight cost per unit, but ties up more cash.
• A supplier with better quality may save money on returns, rework and inspections.

Always compare quotations on the same Incoterm, the same specification and the same quantity, and keep a little contingency for exchange-rate movements and unexpected charges.

Common mistakes to avoid

• Comparing EXW and CIF quotations as if they were the same.
• Forgetting that duty is charged on freight and insurance as well as the goods.
• Using the wrong commodity code, which can lead to underpaid duty and penalties.
• Leaving out local charges at the UK port and final delivery.
• Treating import VAT as a cost, or forgetting the cash it ties up if postponed VAT accounting is not used.

Frequently asked questions

This guide gives general information about UK import costs and is not tax or legal advice. Rates and rules change, so check current guidance on GOV.UK or with a customs adviser before you import.