Customs – Determining Commodity Codes

When a business imports or exports goods, a ‘commodity code’ (also known as HS code or Tariff code), which is a means of classifying goods for import/export purposes, is required to be included on the customs paperwork.

Determining the correct commodity code of goods being shipped internationally not only determines the correct amount of VAT and duty to be paid at import into the country of destination but will also specify whether there are any import controls relevant to that item. This may include whether any licenses are required, and also whether reliefs from customs duties are available when imported from particular countries.

Commodity codes can be found in the UK tariff and may also be referred to as CN codes, tariff codes, TARIC codes or HS codes - the latter is a term relating to the worldwide Harmonised Codes which are set by the World Customs Organisation. An HS code is the first 6 digits of a 10-digit commodity code required at import (although an 8-digit code is required at export), which in most cases are harmonised across the world, although remaining digits may vary from country to country. It should be noted that if goods are being imported into a country other than the UK, the local tariff will need to be considered to ensure the correct code for that territory is selected.

The classification of goods for customs purposes is governed by the General Interpretive Rules of Classification (GIRs) which takes into account the nature of the product in the context of the various Chapter Headings set out within the tariff.

There are several ways of determining the correct commodity code applicable at import, such as by reviewing the tariff, or by sense checking the code used for goods being imported by the sender at export (in any case, the code used at export will only be 8 digits whereas a 10-digit code will be required at import).

However, in both instances, a detailed knowledge of the products being shipped and the tariff is required.

The classification of goods can be challenging, particularly where the goods in question do not fit neatly into a code – despite there being over 11,000 different commodity codes, classification can come down to the minutiae of the product and it may be the case that the product in question does not exactly match any code, particularly where the item is bespoke or unique. This is where the GIRs need to be considered in detail. Where goods are classified incorrectly, this can lead to either an underpayment or overpayment of irrecoverable customs duty, which can expose the importer to assessment by HMRC where duty is underpaid on goods imported into the UK.

It is important to ensure thought is given to commodity codes applied at import and export - should you or your client require any support in classifying goods under the tariff, please do not hesitate to contact us.

Get in touch with our team for advice on determining what commodity codes your business needs and all general queries about managing your VAT obligations. Call our helpline on 0161 477 6600 today.