"I'm importing supplements from China. What does the stock actually cost me by the time it hits my warehouse?" I get that question every week, usually after a founder has priced a launch off the supplier's quote and watched the margin disappear. Here is the direct answer. Landed cost is the price on the supplier's invoice plus everything it takes to get the goods onto your shelf: freight, insurance, customs duty, clearance and haulage. In the illustrative example below, a bottle quoted at £2.20 in China lands in the UK at about £2.68 by sea and about £4.11 by air. Price off the £2.20 and you are pricing off a number that does not exist. This post builds the model line by line.
Here's the Short Version
- Landed cost is an inventory number: supplier price plus freight, insurance, customs duty, agent fees and inland haulage. It goes into your stock value and hits your P&L as cost of goods when the product sells
- Import VAT at 20% is not part of landed cost for a business that recovers it. Paid upfront it is a cash timing item, and with PVA and full recovery it goes in boxes 1 and 4 of the same VAT return, so no import VAT cash leaves at the border
- Customs duty is code dependent and the spread is huge. Code 2936 90 00 00 for vitamin concentrates and code 3004 50 00 00 for vitamin medicaments both enter at 0%, while the main food preparation codes in chapter 21, where tablets, capsules and gummies usually sit, carry 8% or 12% duty from China under the UK Global Tariff
- In the illustrative example below, total landed cost runs about 22% above the supplier price by sea and about 87% by air. Air earns its keep where the time benefit is worth the freight premium, not for core stock
- Watch the DDP quote. If your supplier is importer and owner at import, you cannot reclaim their import VAT, so a hidden tax cost sits inside the price. That is not VAT paid twice, but it is money you never get back
- A small miss in landed cost is a big miss in profit. In this post's example the landed cost sits 47.85p above the supplier price per bottle, so pricing off the supplier price understates COGS by about £19,140 across 40,000 bottles, nearly 14% of the retained profit in our separate £1m brand model
What Landed Cost Actually Means
Landed cost is the total of everything required to bring a product to its present location and condition, ready to sell from your warehouse. For a supplement brand importing from China the list runs: the supplier's price (usually quoted FOB, meaning the goods loaded on the ship in China), ocean or air freight, cargo insurance, customs duty, the customs agent's fee, and haulage from the UK port to your 3PL.
That definition is not loose accounting chat. It comes from the inventory rules in FRS 102, the UK GAAP standard used by many qualifying companies. (Depending on eligibility, others use FRS 101, FRS 105 or UK adopted IFRS.) Section 13 treats the costs of purchase as the purchase price plus import duties and taxes that you cannot recover, plus transport and handling costs directly attributable to acquiring the goods. In plain English: everything spent to get the stock to your door becomes part of the stock's value. In an ordinary sale, the carrying value of that stock becomes an expense in the same period as the revenue it earns, and stock can also be written down when its value falls or expensed when it is given away. That is why your gross margin is decided in China and on the water, not in the marketing meeting.
Equally important is what does not belong in landed cost. Platform commissions, TikTok parcel fees, 3PL picking fees and creator costs are selling, fulfilment and marketing costs, so they stay out of stock value and hit the P&L in the period you incur them. The direction of the mix-up matters. Leave freight and duty out of stock value and you overstate gross margin; push selling costs into stock value instead and you defer expense into later periods. Both distort the picture, and both show up in supplement brand accounts more often than founders expect. We covered the full P&L structure in our post on how a 7 figure supplement brand should structure their P&L.
One more exclusion, because it surprises founders: import VAT. For a VAT registered business on normal accounting, the import VAT you can reclaim is not a cost of the goods. It is tax you account for and then recover, so it should never sit in your stock value or your pricing. Treat it as a cash timing question, not a cost, and it stops scaring you.
The Two Import Charges That Confuse Everyone
An import from China can create two separate liabilities, customs duty and import VAT, and founders routinely conflate them. Import VAT is charged at the same rate as if the goods had been supplied in the UK, which for supplements means 20%, because supplements are standard rated, unlike most food. It is based on the customs value used for duty, plus customs duty and other import charges, plus incidental costs such as commission, packing, clearance, transport and insurance to your first UK destination. If a further UK destination is known at import, transport to it counts as well.
If your business is VAT registered you do not have to pay this at the border at all. Postponed VAT accounting lets you declare the import VAT and reclaim it as input tax on the same VAT return, which nets to zero for a fully taxable business. You do not need HMRC approval, but you do need to be VAT registered, you need your EORI number, and you must tell whoever deals with customs for you, in writing, that you want to use PVA, before the declaration is submitted. Once the declaration is in, you cannot change how you accounted for the VAT. Each month HMRC publishes your postponed import VAT statement online, and that is your reclaim evidence. Download it every month: online statements are archived after six months.
If you are not VAT registered, the story is harsher. You cannot use PVA, so you pay or defer the import VAT and you cannot reclaim it while unregistered. That is still an argument for registering before your first container, because after registration you may be able to recover import VAT on goods you still hold, subject to HMRC's conditions and evidence requirements.
Customs duty is the charge everyone gets wrong. The rate is set by the commodity code your product is classified under, not by what the product is called on your invoice. China has no preferential trade deal with the UK, so Chinese origin goods generally pay the standard third country rate under the UK Global Tariff. Reliefs, suspensions or quotas can change the amount for specific products, so check the live measure for the exact code and import date. The spread is huge. We checked the live tariff tool: code 2936 90 00 00 for vitamin concentrates and code 3004 50 00 00 for vitamin medicament preparations both show 0% third country duty. But the tablets, capsules and gummies you actually sell are usually classified as food preparations in chapter 21, and the codes there carry 8% or 12%: 2106 90 98 69 at 8%, 2106 90 92 85 at 12%, with some 2106 10 protein concentrate lines at 12% and others at 0%. Classification depends on the exact formulation, presentation and intended use.
That is why the commodity code is the first question you ask, not a formality for the agent to sort out. Code the same product two ways and the duty bill can move from zero to 12% of the shipment value. We have seen DDP quotes built on a 0% code for a product that should have been at 12%, and the difference quietly lands in your margin.
Build the Model: Sea Versus Air
Here is the model in full. Every figure is an illustrative example with synthetic numbers, built to show the shape and the arithmetic, not any client's shipment. Your quotes will differ. The assumption: a supplement brand importing 10,000 bottles of a 60 tablet product from a manufacturer near Ningbo. The supplier quotes £2.20 per bottle, excluding international freight, and cargo insurance is about 0.35% of value. The £2,600 and £15,750 freight figures are both treated as transport to the UK border; if any part of that is separately identified UK inland haulage, it must sit outside the customs value for duty, stays in the landed cost, and can count towards the import VAT value under HMRC's destination rules. The product classifies to a food preparation code at 8% duty, the customs agent charges a flat fee per shipment, and all the figures are net of recoverable VAT.
| Line | Sea freight | Air freight |
|---|---|---|
| Supplier price, 10,000 bottles at £2.20 each, excluding international freight | £22,000 | £22,000 |
| Freight to the UK | £2,600 | £15,750 |
| Cargo insurance | £90 | £150 |
| Customs value (price plus freight and insurance) | £24,690 | £37,900 |
| Import duty at 8% | £1,975 | £3,032 |
| Customs agent fee and entry handling | £120 | £120 |
| Total landed cost | £26,785 | £41,052 |
| Landed cost per bottle | £2.68 | £4.11 |
Read it top to bottom and the lesson is stark. By sea, the £2.20 bottle costs £2.68 by the time it is on your rack, an uplift of about 22%. Sea freight is the biggest single piece of that uplift at £2,600, and duty is next at £1,975, which is why the code really matters. By air, freight swamps everything: the same bottle lands at £4.11, nearly double the supplier price, because 3,500 kilograms of bottles at consolidated air rates is an expensive way to move heavy goods.
That gap is why freight mode is a margin decision, not a logistics detail. Sea is usually the cheaper way to move heavy stock on a planned schedule, and you build the timeline around the supplier's production lead time, the forwarder's door-to-door estimate and a contingency, because route, port and clearance conditions move it. Air earns its place for a launch that must hit a date or a stockout on a best seller, when the time benefit is worth more than the extra freight. Air freight is a tool for moments, not a supply chain strategy.
And the model is not finished at the warehouse door. If you pay the supplier in dollars, currency moves between order and settlement change the landed cost. If the pound falls 5% against the dollar, a fixed dollar commitment worth £22,000 before the move costs about £23,158 after it, an increase of about £1,158, or 11.6p a bottle. Importers handle that in different ways: a hedging product from the bank, a pricing contingency built into the model, or leaving the exposure unhedged and carrying the risk. Timing matters just as much: a common structure is 30% with the order and 70% before shipment, which means two cash outflow dates, the deposit at order and the balance before the goods sail. Each sits ahead of the first sale, so model the gap between each payment and the sale it funds. We covered the wider cash-flow pressure created by stock purchases in our post on the £1m revenue trap.
The DDP Trap
Chinese suppliers love quoting DDP, delivered duty paid. It sounds wonderful: one price, the goods arrive at your door, no customs paperwork for you. In practice, for a VAT registered UK business, it can be the most expensive way to buy stock you will ever find.
Here is the mechanics. Under DDP, the seller is responsible for import clearance and the import taxes, and in practice the supplier's own agent makes the declaration in the supplier's name. If the supplier is importer and owner at import, the goods will not appear on your postponed import VAT statement, and you cannot reclaim import VAT that belongs to the supplier. Two things to get straight. First, this is not you paying the same VAT twice: you account for output VAT on your own sale as normal, and if the supplier properly charges UK supply VAT on a valid VAT invoice, you may be able to reclaim it. Second, size the tax properly: import VAT at 20% is one sixth of the VAT inclusive import VAT base, which is not automatically one sixth of the full DDP quote. What you cannot recover is the import VAT buried in an all in price with no valid VAT invoice to you.
The cleaner structure is to control the import yourself: buy on DAP or FOB terms so your own agent makes the declaration in your name, with your EORI and VAT number. You use PVA, and the import VAT nets to zero on your return. You also keep control of the commodity code, which is the lever on the duty line. If a supplier will only sell DDP and will not let your agent handle the entry, treat the quote with real suspicion and build your own landed model before you accept it.
What Landed Cost Does to Your Margin
Now the part that keeps accountants employed. Take the illustrative example from this post and sell the bottles at £25 net of VAT. At the true landed cost of £2.68 your COGS is about 10.7% of the selling price. Plan the launch on the supplier price instead and you think COGS is 8.8%. The exact gap is 47.852p a bottle. It is a rounding error on one bottle, and it is not a rounding error on 40,000 of them: that is £19,140.80 of gross profit, or about £19,200 using rounded unit costs.
Scale it to the £1m revenue brand from our recent post on what a £1m TikTok Shop supplement brand really keeps. That model ships about 40,000 orders a year, so assume one bottle per order, with COGS around 28% of revenue. Price off the supplier price and ignore that freight, duty and clearance still have to be paid for, and your real COGS is £19,140.80 higher than your plan says, about £19,200 using rounded unit costs. Against the illustrative retained profit of £138,500 in that post, that is nearly 14% of everything the founder keeps after tax. You would not hand £19,000 to a supplier by mistake, but brands do it every year through a lazy landed cost model.
The good news is that the model is easy to keep honest. Rebuild it for every purchase order, because freight rates move, duty codes change and the dollar does not care about your launch plan. When the model says a product cannot hit your target margin at the price the market will pay, that is information. It means the supplier price has to come down, the freight mode has to change, or the product does not belong in the range. We ran the same contribution logic for subscription pricing in our post on pricing a 28 day supplement subscription, and the principle is identical: the cost that arrives before the sale decides the profit that survives it.
Three Checks to Run Before Your Next Purchase Order
You do not need a customs broker on the payroll to get this right. Run these three checks before you commit to the next order.
Check one: confirm the commodity code and the duty rate yourself. Ask your supplier or agent for the exact code they intend to declare, then look it up on the UK tariff tool and read the third country duty rate. If the code sits in chapter 21 food preparations, expect 8% or 12% from China, not zero. If it is 2936 90 00 00 or 3004 50 00 00, zero applies. The code decides, so verify it before you build the price, and get an advance tariff ruling from HMRC if the shipment values justify the wait.
Check two: rebuild the landed model per batch and compare it with any DDP quote. Supplier price, freight, insurance, duty at the real code rate, agent fees, haulage. If a DDP quote comes in cheaper than your own build, ask which code and customs value were used, who is importer and owner at import, and what VAT evidence you will get. Do not assume the price difference has one cause.
Check three: confirm PVA is set up with your forwarder in writing. A one line email saying you want postponed VAT accounting on all imports, with your EORI and VAT number, before the declaration goes in. The cash-flow benefit equals any import VAT you would otherwise pay upfront, and on shipments this size that runs to thousands of pounds. Then download the PVA statement for the month the import declaration was recorded, usually available by the tenth working day of the following month, and file it with the purchase records, because that statement is your evidence if HMRC ever asks. We covered the wider VAT picture for growing ecommerce brands in our guide to VAT rules for brands growing past the threshold.
FAQ
What counts as landed cost when I import supplements from China?
Everything it takes to get the goods to your warehouse: the supplier's price, freight, cargo insurance, customs duty, the agent's fee and inland haulage. It is capitalised into stock value and becomes cost of goods in the period of the sale it earns. Recoverable import VAT and selling costs such as platform fees and fulfilment are not part of it.
Do I pay import duty on supplements from China?
Usually yes, and the rate depends on the commodity code. Code 2936 90 00 00 for vitamin concentrates enters at 0%, but tablets, capsules and gummies are usually classified as food preparations in chapter 21, where duty runs at 8% or 12% depending on the exact code and formulation. China has no preferential deal with the UK, so check the code on the tariff tool before you price the product.
Can I avoid paying import VAT upfront when stock arrives?
Yes, if you are VAT registered. Postponed VAT accounting lets you declare the import VAT and reclaim it on the same VAT return, so nothing is paid at the border for a fully taxable business. Tell your customs agent in writing before the declaration, and keep the monthly PVA statement as your reclaim evidence.
The Bottom Line
Your supplier's quote is the start of the cost, not the cost. Freight, insurance, duty at the real commodity code rate, agent fees and haulage turn a £2.20 bottle into £2.68 by sea or £4.11 by air, and the difference lands directly in your gross margin. Import VAT is a cash timing game you win with PVA, and a trap you lose in a DDP deal where the supplier is the importer. Rebuild the model for every purchase order, verify the code yourself, and never price a launch off a number that ends at the factory gate.
If you want us to check whether your landed cost model is eating your margin, that is the kind of review we do every week. We are specialist social commerce accountants, we work with UK ecommerce brands from £1m to £20m, and we see import stock models from China on a regular basis. Book a call and we will rebuild the model with you, in numbers.