What are tariffs, and how could they affect my business?

There has been a lot of talk about tariffs in the news recently, but what are they and how can they affect your business?

For many small businesses in the UK, tariffs might feel like something abstract — a word bandied about in political debates or trade talks. But they can have very real effects, whether it’s the cost of importing goods creeping up or changes in supply chains.

This article unpacks what tariffs actually mean, why they matter and how to stay one step ahead.

What is a tariff?

A tariff is a tax on goods being imported into a country. When goods cross a border into another country, they might be charged a fee — that’s the tariff.

Tariffs are usually worked out as a percentage of what something’s worth. So, if there’s a 15% tariff on a £20 gadget, you’re looking at an extra £3 charge.

Tariffs are trade tools. Governments can add tariffs to imported goods, either to raise money or to make foreign products less competitive compared to products made on home turf.

They can be used to protect local industries when cheaper imports start flooding in. By adding a cost to those imports, tariffs help level the playing field, making home-grown products look more appealing price-wise.

In most cases, it’s not the company exporting goods that pays the tariff — it’s the importing company. And that extra cost has to go somewhere. Sometimes the importer passes it on to customers, which means higher prices for consumers, or the importer takes the hit themselves, which could affect their profit margin.

Alternatively, the importer might decide to bring in fewer goods from overseas altogether.

Over the last half-century, the global trend has been to cut back on tariffs to promote free trade. But like most trends, they go in and out of fashion.

How can tariff changes affect your business?

For small businesses in the UK, especially those selling goods or sourcing materials from abroad, tariffs can affect their profit margins.

Say, for example, you’re importing artisanal coffee beans from Guatemala. If there’s a tariff on those beans, that’s an extra cost added before they reach your warehouse. And those costs have got to go somewhere. So, they’ll either be passed on to customers, absorbed by your business or chipped away from your bottom line.

Either way, you might be losing out — either by pricing out some of your customers, or by affecting the profits you could be making.

On the flip side, if you’re making your goods in the UK and selling them domestically, tariffs on competing imports might work in your favour because your home-grown products could be more competitively priced and appealing to buyers.

When considering tariffs, you might also want to keep an eye on the competition.

Let’s say you make coffee machines to sell alongside your beans, and business is brewing nicely in the UK. If another company that usually sells abroad gets roasted by high tariffs in their regular market, they might pivot, flooding the UK (where tariffs are lower) with their machines instead. That sudden surge could knock your sales and hit your bottom line.

The tricky bit is that tariffs can change. They’re often tied up in international trade agreements, political shifts or economic strategies.

Understanding the tariffs that could affect your business

The UK's largest trading partner in the world is the 27-nation European Union bloc, unsurprisingly, given that all of the UK’s nearest geographical neighbours are EU members. Post-Brexit, some of the import/export rules that previously applied have changed.

In theory, UK trade with the European Union is tariff-free. The UK and EU shook hands on the Trade and Cooperation Agreement in December 2020. This agreement scrapped tariffs on goods traded between the two.

The catch is that they have to pass the rules of origin test. This means that those goods have to be “local enough” to qualify, and exporters need to provide where the goods come from, right down to the parts and ingredients.

But this can be a lot of paperwork, and for some businesses, ticking all those boxes is more hassle than it’s worth, so they just pay the tariff. That could change if the UK joins something called the Pan-Euro-Mediterranean Convention (PEM for short). It would let content from a wider range of nearby countries count as “local”, making it easier to qualify for the no-tariff treatment.

But it’s not just European countries you may import from or export to. In 2024, the UK exported almost £60 billion worth of goods to the US, making it a key market for many British businesses.

With tariffs being a key talking point right now, it’s important to keep on top of the latest data. There are many resources available to help UK businesses identify the tariffs that may affect them. The UK government provides tools and databases to look up specific tariff rates based on the goods being imported or exported.​

One such resource is the UK government’s Trade Tariff Tool. This calculator can allow businesses to search for import and export commodity codes and find the corresponding tax, duty and licenses that apply to their goods. This can help you in determining the correct amount of customs duty and import VAT.

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