This is similar in New Zealand, although our allowable amount is a bit higher. In NZ though the amount on which VAT is charged also includes the cost of delivery, so you might want to check if this is the case in the UK.
Actually, if you look at the UK DHL site (not sure if links are allowed here, but a search on "DHL UK duties and taxes" should put it at the top) it says:
"What is the value for VAT?
The value for VAT is the declared value of the goods plus the transport costs to the country of destination plus the customs duty."
When I lived in the UK I remember being hit for about 14 pounds on a $50 hat, though I'd always heard tales about how it was quite random whether your item would be targeted or not.