How I learned to love commodity codes

By Rizwan Khan, Customer Support at clearBorder

I’d never heard of commodity codes before Brexit.

I fell into the world of international trade due to Covid. So I approached it as a newcomer. I’ve had to learn. Fast.

But that has advantages too. I’ve been able to see things with fresh eyes. I understand how it looks to businesses who’ve never traded internationally before.

I’ve learnt that it can be done. It can be done well. And there are huge opportunities for businesses that adapt.

My experience of Commodity Codes began while I was working for the Trader Support Service, which helps businesses trade with Northern Ireland. We helped companies get trained and keep trading in line with HMRC standards when importing and exporting goods – a tricky process to start with.

My experience got me pondering about how companies can make sure that the new processes are followed.

The problem faced by these companies was simply not knowing what needs to be done, for example on EORI numbers, VAT numbers or commodity codes.

After months training individuals, one particular problem kept on coming up.

This was the classification of goods by commodity codes. If a company hadn’t traded outside the EU before, they’d never seen a commodity code.

Suddenly they had to classify their goods. Many companies chose whatever commodity codes they felt were correct, but no guidance had been given, so wrong commodity codes were being used on a regular basis.

I can hear you asking the question – what are commodity codes and why are they so important?

Excellent question. Well, when it comes to importing and exporting, commodity codes are extremely important.

What is a commodity code?

A commodity code may also be referred to as Harmonised System Codes (HS Code). It’s an internationally recognised series of numbers used to classify products for international trade. The first 6 digits of a commodity code are used worldwide.

The UK commodity code is a 10-digit number used to classify goods at the point of entry (Import) into the UK. The code used for Export will be 8-digits long.

It is used to determine what duty is payable, whether to apply rules of origin and what regulatory requirements exist. Identifying the correct commodity code is crucial!

You’ll need to find the right commodity code for any goods you import or export. You can use the Trade Tariff: look up commodity codes, duty and VAT rates – GOV.UK tool. This will help you:

• Complete Import and Export declarations and other paperwork
• Make sure you pay the right customs duty and Import VAT

It will also help you check if:

• Whether you need a licence to move your goods
• You could pay lower customs duty (for example because your goods are covered by a trade agreement)
• If your goods are covered by agricultural policy, anti-dumping duties, UK safeguarding measure or tariff quotas

Finding the right commodity code for your goods can be complicated. When using the trade tariff tool, you will need to know the details about your product, this may include the:

• Type of product
• Purpose of the product
• Materials used to make the product
• Production methods used to make it
• Way it’s packaged

If you have an item made of two substances (for example, clothing that is 60% cotton and 40% polyester) you’d normally classify the item using the higher percentage content.

You must accurately describe your item to the search tool. Here are some keys steps to help you get started:

1. Enter the search term you want to use – an item may not be listed by name, it may come under what it’s used for or made from
2. The tool will suggest a section or number of sections, divided into chapters
3. The headings in each chapter describe a product, only select a sub-heading if your item is accurately described
4. If your item is not accurately described, check further down the list – if none of the sub-headings match your item use the ‘other’ heading

The UK tariff lists UK duty rates and other import/export information. However, the UK tariff does not currently show all restrictions on imports/exports (for example the need for an import license, anti-dumping duty etc.) So it is sensible to check the EU tariff as well for any likely restrictions that may apply.

Northern Ireland

If you’re bringing goods into NI from outside the UK and the EU, you will need to pay the UK duty rate, if your goods are not at risk of onward movement to the EU. Otherwise, use the Northern Ireland (EU) tariff.

The EU tariff (known on the Gov.UK as the Northern Ireland (EU) tariff) currently provides more information than the UK tariff – especially about whether you may need an import/export licence.

It is prudent to also check the commodity code against the EU tariff – as that is what any EU customer will need to reference. You can do this by clicking on the ‘switch to Northern Ireland (EU) tariff’

By clicking on the Import tab, find the country the goods originate from or are going to, and see if any special measures/restrictions are in place.

Getting help

If you cannot find the right commodity code for your goods, you can contact HMRC for advice or for a decision on your goods. This should only be used for quick, basic and informal decisions.

You can get in touch with us at clearBorder. We provide independent, expert advice not tied to any other service or company. We’ve also got training products to help you get up to speed at your own pace and/or train your teams.

You can also consider getting a legally binding decision on goods if you are importing/exporting them regularly and want to determine a classification you can be 100% sure of.

Do I have to?

With the UK now out of the customs union, you will have to learn about commodity codes.

If you cannot accurately match your goods to the right code, you will be paying the wrong duties.

Incorrectly classifying a product can also lead to non-compliance penalties, border delays, seizure of the products or even a denial of the import privileges. As the exporter or importer of a product, you’re responsible for correctly classifying it. Don’t forget – you are liable!

Commodity codes have to be included in the customs declarations that you or your agent provide to clear any goods through UK or EU customs. This will make clear how much taxes, VAT and tariffs you should be paying.

Assigning these codes to all product types for the UK / EU and any other country can be time consuming and expensive at first. But it gets easier. And with expert advice like clearBorder’s to hand, you’ll soon be confident and the worry will drop away.

Finally, remember that if you are importing products which you then sell into the EU, rules of origin requirements will apply. These are some of the most important provisions that your business needs to understand. They’ll be the subject of another blog – and they’re also covered in our Border Ready Importing and Exporting course, which you can do at your own pace.

It’s best to seek expert advice if you are not sure. Your agent or freight forwarder may be able to help. clearBorder can help you get a full understanding of how to pick the correct commodity codes, so you won’t experience the problems that so many others have.

‘The future depends on what you do today’ – Mahatma Gandhi