Free charge goods
Information about free charge goods.
Goods may be supplied as ‘free of charge’ value for customs purposes only. That is without having been the subject of a sale or any other consideration. This can be for a variety of reasons including gifts, samples, promotional items. Such goods may be shipped separately or as part of a larger consignment. ‘Free of charge’ goods are often of low value. However, capital equipment, especially ‘used’ machinery, may also be shipped ‘free of charge’, in particular by a head office to a branch or a parent company to a subsidiary. The equipment concerned may be of high value.
The valuation of ‘free of charge’ goods should not be confused with ‘assists’. That is, goods supplied ‘free of charge’ by the buyer for use in the production of the imported goods.
Where goods are supplied without charge that is, without having been the subject of a sale or any other consideration, Method 1 cannot be used. This is because there is no price paid or to be paid by the importer to their supplier. However, an importer may be able to use Method 1 when they’re importing the goods pre-sold, and they can produce evidence of that sale.
It is sometimes possible to apply Methods 2 or 3 and, exceptionally, Methods 4 or 5. An importer can try using Method 2 or Method 3 if they import or have knowledge of imports of identical or similar goods under Method 1. They can use Method 4 if they sell the goods or identical or similar goods to unrelated customers in the UK. They can use Method 5 if they can get the detailed costings of the goods.
Usually, it is necessary to determine the value of the goods under Method 6 by reference to the price that would have been paid for the goods if they had been purchased. This may be substantiated by, for example, a price list for the goods provided by the supplier.
In all cases freight, insurance, loading, and handling charges associated with the transport of the goods to the UK are to be included in the customs value.
Where there are regular shipments of ‘free of charge’ goods between the same supplier or importer combination, a formal agreement between Customs and the importer as to the appropriate method of valuation is desirable. Read Advance Valuation Rulings for more information.
With certain types of goods, it is trade practice for the sellers to include in their shipments a quantity of items ‘free of charge’ as replacements for items which experience shows are likely to be defective or damaged in transit. Similarly, materials in excess of the ordered measurements may be sent, such as the edges are known to be liable to damage in transit.
In these cases, the sale price is to be regarded as covering the total quantity shipped. No attempt is to be made to value separately the free replacements or to take account of the additional quantity for valuation purposes.
A similar approach may be taken when the contractual arrangements between the importer and seller provide for the supply of a number of free of charge items for a given number of items actually purchased. For example, 10 items free for every 100 items purchased. In such cases, the price actually paid or payable is considered to be for the total number of items actually imported, inclusive of the free of charge items.
Where replacement goods are sent free of charge in a subsequent shipment and it is clear from the contractual arrangements that this shipment is in fulfilment of the original transaction, the customs value is to be based on the unit price in that transaction. An adjustment to the customs value of the original shipment is to be considered separately.
Where replacement goods are invoiced at the original unit prices, those prices would form the basis for determination of the customs value. Any arrangements regarding credit for the original goods would need to be considered separately (WCO EN 3.1 paragraph 12 refers).
Sellers may include a certain quantity of free of charge ‘testers’ or ‘samples’ as surplus, within their shipments of goods that the importer has paid for. These ‘testers’ or ‘samples’ can be identical to the goods imported by the importer, except for denotation that they are testers. For example, where a company imports 5,000 jars of face cream which are accompanied by 1,000 jars of identical face cream that are delivered free of charge bearing the same name but labelled as ‘testers’ and therefore cannot be sold. Another example is where they can be similar to the goods imported by the importer, either in the same packaging or a smaller size. For example, where a company imports 5,000 jars of 75ml face cream which are accompanied by 1,000 jars of 15ml face cream that are delivered free of charge and are intended to be distributed as ‘samples’.
If the contracting arrangements include the free samples and testers, its value forms part of the customs value which is the price paid or to be paid according to Section 16 of the Taxation (Cross-border Trade) Act 2018. An indication that the samples are included free of charge in the supply should be indicated in the sales contract, on the invoice or in any other document.