Under the allowance,
or taxed on all of it?

A threshold, not a discount

Under the Great Britain rule, goods worth up to the allowance come in free of tax and duty. Go over it and GOV.UK says you pay tax and duty on the total value of the goods, not just the value above the allowance. So £400 of goods at 20% VAT owes £80, not £2.

You cannot combine your allowance with someone else’s. Alcohol and tobacco have separate allowances with the same all-or-nothing effect. Other countries may use different methods; check the destination authority. Read the full-value rule and UK tax-free shopping.

Declaring

If you are over, declare the goods. Keep the invoices; see which documents to keep. The landed-cost calculator applies the same rule to a single purchase.