Is UK VAT a Tariff? Why Some US Businesses (and Trump) Think So

There have been a large number on posts on LinkedIn recently debating whether the UK’s Value Added Tax (VAT) on imports functions like a tariff for US businesses. President Trump has even claimed that VAT is an unfair trade barrier but is that actually true?

Here are the facts:

VAT is NOT a tariff.

A tariff is a tax on imports to protect domestic industries. However, VAT is a consumption tax that applies to goods sold within the UK, it's just like sales tax in the US but is collected at a different point in the supply chain.

Why do some US companies see VAT as a cost?

Some US businesses importing goods into the UK may act as the importer of record (IOR), such as when shipping under DDP (Delivered Duty Paid) Incoterms. In this case, they are responsible for paying 20% import VAT at the border when the goods clear UK Customs.

So, this means they are legally responsible for:

• Ensuring compliance with customs regulations
• Paying any applicable import duties, VAT and any other taxes
• Filing customs declarations

If they don’t register for VAT in the UK, they cannot reclaim it turning VAT into an unnecessary cost.

The solution? Simply VAT registration.

A US company importing into the UK can recover import VAT if it registers for VAT and complies with UK tax rules.

That means:

1. Registering for VAT with UK HMRC
2. Charging VAT on sales to UK customers
3. Filing VAT returns with HMRC

How Can a US Business Register for VAT in the UK?

A US company does not need a UK entity to register for VAT but they must follow these steps:

Determine if VAT registration is required

• If the company imports goods into the UK and sells them locally, VAT registration is usually required.
• If they are only importing and selling to VAT-registered UK businesses (who handle VAT under a reverse charge mechanism), they may not need to register.

Complete a VAT registration application with HMRC

• This is done via the UK government website.
• The company will need to provide details such as business activities, expected turnover and import/export information.

Appoint a UK-based VAT representative (if needed)

• If the business is based outside the UK but inside the EU, appointing a UK VAT representative is not mandatory.
• If the business is based outside the UK and EU (like US businesses), HMRC may require a VAT representative.
• This representative is responsible for ensuring VAT compliance and can be jointly liable for VAT debts, so businesses must choose carefully.

Register for a UK VAT number

• Once approved, HMRC issues a VAT number, allowing the business to reclaim import VAT and charge VAT on UK sales.

File VAT returns

• Most businesses file quarterly VAT returns to HMRC.
• The company must charge VAT on UK sales, collect it from customers and pay it to HMRC but they can deduct the import VAT paid at the border.

Why don’t some US businesses reclaim VAT?

Many US businesses don’t realise that VAT is recoverable, leading them to absorb it as a cost. Others see VAT registration as an administrative burden due to the extra paperwork involved. Some simply prefer to keep things straightforward but that simplicity often comes at a financial cost.

So, is VAT an unfair tax on US businesses? No, it’s simply a tax that must be managed correctly. The UK already provides a mechanism to reclaim it. If you’re a US business importing to the UK, don’t turn VAT into a cost - register and reclaim what’s yours.