There are many processes associated with the export and import of goods. These procedures are put into place so that goods can cross borders safely and legally. As part of the import-export activity, customer declarations must be completed. Requirements may differ from country to country; however, commodity codes are always required on custom declaration forms. Commodity codes are required for trading internationally because goods will have different names in different languages. For example, the word 'gift' means 'poison' in German. Therefore, commodity codes are a useful way for countries to communicate easily with each other about trade, and hopefully avoid any awkward 'birthday-gifting' situations overseas.
An online database, the Integrated Tariff of the European Union (TARIC), holds the commodity codes for all the member states of the European Union (EU). This is updated regularly, which means that importers and exporters can rely on the same standards and treatment throughout the EU. UK traders can also find commodity codes in the UK Trade Tariff database. This is published once a year and updated every ten months, which makes it less reliable than TARIC. However, the UK Trade Tariff contains UK specific data on VAT, licensing, restrictions and excise duties. If the UK leaves the EU with no deal, you may need to pay different rates of customs duty.
What are they used for?
Commodity codes are used when completing paperwork for customs declarations. They help customs decide how the goods should be treated. Usually, commodity codes are made up of ten digits, however, they sometimes have fourteen. For imports outside the EU, the first ten digits are used for TARIC imports declaration. You only need the first eight digits for exports from the UK. The rest of the code is used for export declarations and Intrastat commodity codes declarations, which is a system used for collecting statistics on the trade in goods between EU member states.
The digits correspond to different elements of the goods, including the type of product, the material used to make it, and the production method. To find your item on the UK Trade Tariff database, you'll to make sure you can accurately describe these features. Once you can accurately describe your goods, it's quite easy to use the UK Trade Tariff database.
Once you've found the commodity code, you can see your item's duty rating, as well as alerts for any import or export restrictions. The commodity code also tells you:
- The duty and VAT ratings you'll be charged for your goods.
- If you can apply for a preferential duty rating – preferential treatment means that your goods may benefit from tax exemptions or Free Trade Agreement reductions.
- Whether your product requires an import licence - without a licence, the goods could be delayed at customs, or worse, they could be confiscated.
- Whether anti-dumping duties apply – these are charged in addition to normal customs duty; they are designed to allow the EU to act against goods that are sold at less than their normal value.
If you'd like to find the commodity code of a jumper, you must be able to accurately describe what it is made of, how it is constructed and if it is for a man or a woman. In this example, the jumper is made from cotton in a knitted material and are designed for a woman. This means you can select Section 11, chapters 50 to 63, which is 'Textiles and Textile articles'. As the jumper is knitted, you can select chapter 61 specifically, as this refers to 'Articles of apparel and clothing accessories, knitted or crocheted'. Sub-section 06 is 'Women's or girls' blouses, shirts and shirt-blouses, knitted or crocheted', which you can narrow down further to 'Of cotton'. Now you can see that the commodity code for importing the jumper is 6106100000, and 61061000 for exporting.
Why are commodity codes important?
Commodity codes are linked to various import and export laws, as well as to duty and tax rates. This means that improper use of commodity codes can result in fines. You could even be charged with fraud, as some businesses deliberately use the wrong commodity number to pay less tax. This can have significant financial and reputational implications for your business, as an association with fraudulent behaviour will affect public perception. If you fail to use the right commodity code, your goods might also be denied preferential duty treatment, which can result in additional tax charges. The products might also be classified incorrectly or end up in another country. If you're caught using the wrong commodity code, your products may be seized or delayed by the customs.