Commodity Codes: Are your Products Classified Correctly?

Getting your commodity codes right is crucial for any business involved in importing or exporting goods. But why is it so important? Let’s explore the significance of commodity codes and the impact they can have on your business operations.

Commodity codes: Why is it important to get it right?

Commodity codes, also known as tariff codes or Harmonized System (HS) codes, are internationally recognised reference numbers used to classify goods for import and export. These codes provide essential information to carriers and customs authorities about what your goods are.

Understanding and correctly applying these codes is crucial because they are used for:

• Accurate customs declarations: Ensuring your goods are correctly classified allows for precise customs declaration data, which is essential for avoiding delays and penalties
• Determining duties and taxes: The correct commodity code will determine the rate of duties and taxes applicable to your goods, impacting your overall costs
• Finding eligible duty reliefs: Some goods may be eligible for reduced or zero-duty rates. Using the correct code ensures you can take advantage of any available duty reliefs

Learn more about Harmonized System codes in this article from World Customs Organization: The HS: a Multi-Purpose Tool

What happens if your commodity code is incorrect?

Getting your commodity code wrong can lead to several complications:

• Delays in customs:  If an error is noticed while your goods are going through customs, it could lead to delays. This delay occurs because all documents need to be in order before the goods can be imported
• Penalties and fines: If incorrect commodity codes are discovered during or after the customs process, you could face penalties. You might also be required to pay interest on back payments, or, in the worst-case scenario, have your goods seized entirely
• Overpaying on duties: An incorrect commodity code could result in overpaying duties, which can significantly increase costs for any business

Overpaying on duties? Practical example: Orthopaedic products

To illustrate the importance of using the correct commodity code, consider this practical example for those in the orthopaedic industry, specifically regarding tight-fitting “supporting” garments.

To qualify as an orthopaedic product under import regulations, a product must not have a general purpose. It should be capable of completely preventing specific movements in the affected body part and be adaptable to a patient’s specific disability. Examples of products that do not fall under the category of orthopaedic products, include arm slings, belts, and other textile articles whose supportive effects depend solely on the elasticity of the material.

Using the correct commodity code can lead to significant duty reliefs. For example:

• Commodity code 902110: This code refers to orthopaedic or fracture appliances, which incur a 0% third-country duty (classified as medical devices)
• Commodity heading 6212: This code refers to brassières, girdles, corsets, braces, suspenders, garters, and similar articles, all of which incur a third-country duty of 6% (classified as fashion items)

Classifying a supporting garment incorrectly under commodity heading 6212 instead of 902110 could lead to a 6% duty on your goods, significantly increasing your costs unnecessarily.

Overpaying on duties? Practical example: Textiles

Our second example is taken from the textile industry, specifically focusing on linen and blankets:

• Commodity heading 6302: This heading covers bed linen, table linen, toilet linen, and kitchen linen. Bed linen specifically under this heading incurs a third-country duty ranging from 6% to 12%. Misclassifying products as bed linen could result in paying higher duties.
• Commodity subheading 63079098: This subheading refers to inlets for blankets and pillows, which incur a third-country duty of 0% to 6%. These inlets are distinct from bed linen, as they are designed to be filled and permanently closed, making them a different product category.

Misclassification Risks: Classifying an inlet for a pillow under heading 6302 instead of subheading 63079098 could lead to a duty rate of up to 12% instead of 6%. This misclassification can lead to significant overpayment or underpayment of duties, potentially impacting your bottom line.

Recent changes in classification rules emphasise the importance of understanding product differences to avoid such costly errors. For more detailed guidance, refer to the UK government’s tariff notice on inlets for blankets and pillows.

Pillowcase or pillow inlet? Misclassification could result in a duty rate of up to 12% instead of 6%.

Importers in charge of their commodity codes

As an importer, it is your responsibility to ensure the accuracy of your customs declarations, including commodity codes. Do not rely solely on the commodity code provided by your supplier, customs broker or freight agent.

Whether you handle imports yourself or use customs brokers, you are responsible for the accuracy of your customs declarations. Commodity codes and all other customs related data.

You risk fines, delays, and missing out on potential duty reliefs if mistakes are made.

Tips for importers to get their commodity codes right

To avoid costly errors and ensure you are using the correct commodity codes, consider the following tips:

• Know your product: In-depth knowledge of your product is crucial. Train your staff and stay informed about any changes in classification
• Work closely with your customs brokers: Provide clear instructions about your commodity codes and other customs data related to your products
• Consolidate all your customs documents: Ensure you have a complete archive of all your customs declarations and supporting documents from all your customs brokers and agents
• Verify information: Check your customs declarations and supporting documentation to ensure your broker is following your instructions and that all customs data is accurate
• Utilise tools: Use tools like Emma E-Doc to streamline and speed up the process. This tool can help you monitor your customs broker’s performance, verify commodity codes, and detect errors

By taking these steps, you can minimise risks, avoid unnecessary costs, and ensure your goods are classified correctly every time. Getting your commodity codes right is vital for compliance and can significantly impact your bottom line.

So, make sure you’re on top of your commodity codes and keep your business moving smoothly!