Ad valorem is a Latin expression that means “according to value.”
In general, ad valorem tax is any tax based on the value of a property. When it comes to customs, it is the value of the goods according to which the rate of import duty is determined.
Each item has a code in the Harmonised System (also called an HS code) that determines the rate of the tax.
For example, if you were to purchase a laptop from abroad worth £1000, you would be responsible for paying customs duty and import tax. The ad valorem would be a percentage of the computer’s total value.
You will recognise this tax by its acronym: a.v. or Ad. Val.
When it comes to ad valorem tax for imported goods, it is levied by a country’s customs authority.
In the UK, once an item arrives from overseas, it has to go through customs clearance. It’s at that point that the rate of customs duty and import VAT is determined according to the HS code.