A commodity code is a number that determines the type of goods you are importing or exporting. This number can be six, eight, or ten digits depending on the origin and destination of the goods and ensures that the correct customs duties and VAT are paid on all imports and exports.
Completing customs paperwork correctly has always been complex but Brexit-related changes have made the process more difficult than ever. To help make it easier, here is our in-depth guide to commodity codes.
What is a commodity code?
Put simply, a commodity code is a tax code for imports and exports coming in and out of a country. Commodity codes determine the type of goods you are importing or exporting, what customs duties need to be paid on them, and whether VAT needs to also be included in those costs.
There are six-, eight- and ten-digit codes depending on where your product comes from as well as where it is going. Commodity codes are important because they make it easier for you to fill in your customs paperwork and ensure that everything is above board. They also help countries know what is coming and going across their borders so they can effectively regulate trade.
Why do you need a commodity code?
When importing or exporting, if you don’t have a commodity code, it means no one knows what to charge for import/export duty and who should pay VAT. This can mean that businesses end up waiting longer than usual before their products arrive at their destination.
In addition, not having accurate information could lead to incorrect assumptions being made about how much tax is payable which may result in penalties from HMRC. It is, therefore, important to know what type of product you’re dealing with as well as its origin and destination so that an appropriate number can be assigned.
What are six-digit commodity codes used for?
Six-digit commodity codes are for goods that have a destination country outside the UK and a single six-digit code is assigned to each product. A large number of countries, including those from Europe as well as China, Russia and Ukraine assign these types of numbers to their exports. These can be used by businesses importing goods from non-EU countries into the UK or exporting products out of the UK where they will land at ports in North America or Asia.
What are eight-digit commodity codes used for?
Eight-digit commodity codes cover destinations within Europe which means you need an eight-digit commodity code if your cargo includes items going to another European Country (including Northern Ireland). It’s important to remember though, that this includes countries from both the EU and European Free Trade Area (EFTA) with a few exceptions.
Norway, Iceland and Liechtenstein are not included as destinations for eight-digit commodity codes but Switzerland is which means you will need an eight-digit code if your cargo goes to any of those three places. Eight digit commodity codes also cover some territories such as Ceuta; Melilla; Mount Athos; Canary Islands; French Polynesia; Aruba – Netherlands Antilles: Saint Martin (French Part); Curacao –Netherlands Antilles: Bonaire –Netherlands Antilles and Sint Eustatius –Netherlands Antilles.
What are ten-digit commodity codes used for?
Ten-digit commodity codes are for destinations outside of the EU and EFTA, including North America which means you will need a ten-digit code if your cargo is going to the US, Canada or Mexico. These can also be used with eight-digit numbers for transit through certain places such as Hong Kong; Macao – China; Singapore – Malaysia: Johor Bahru Customs District – Malaysia however they cannot be used in conjunction with six digits.
What happens if you don’t have a commodity code?
If you don’t have a commodity code on your goods then you are set for significant customs difficulties. This is because, without a code, no one knows what to charge for import/export duty and who should pay VAT, so they are likely to hold your goods at customs. You may also be unable to claim reliefs or exemptions from customs charges due because HMRC will not know how your goods are classified.
This is why it is so important to make sure you have the right commodity code for everything you try and import in and export out of the country. If you have any issues, get in touch with HMRC so they can advise you on what you need to do.
What are customs duties?
When importing or exporting goods, you must pay customs duty. This is a payment on the import of certain products into another country which is subject to quotas and duties that are collected by approved authorities in trade deals between countries. Most imports have some form of tax applied through these charges but they also exist for exports too – although it’s important to remember that export taxes do not serve as revenue for exporters but instead go towards funding certain projects within the recipient nation.
Customs duties are generally charged on goods that come into the UK from outside of the European Union. Depending upon the country they come from, this could be anything up to 14% of their value and it’s important to remember that as well as having a commodity code, you will need an import entry if your cargo is entering or leaving EU countries using any other method than through customs (such as online parcel delivery services like UPS).
What is the UK agricultural policy?
The UK agricultural policy is a system that the UK uses to manage subsidies, trade and production in agri-food products. It’s designed with three main objectives: increasing competitiveness; sustainable management of natural resources; fair treatment for all involved (producers, retailers and consumers).
This includes agreements regarding free access for certain goods but also has quotas in place on some exports that can only be exported out of the country if they meet specific standards which determine how much product is permitted based upon domestic demand.
What are UK anti-dumping duties?
UK anti-dumping duties are a type of legislation that has been put in place to protect UK businesses from unfair competition. In the global marketplace, there is no way for the UK to enforce its own business rules on other nations so anti-dumping duties can be used as protection against imports by setting specific tariffs on goods coming in, particularly those which are available at significantly lower prices than those within Britain.
These tariffs vary depending upon what product they are being applied to and who is importing them but they have already been implemented with certain key materials such as steel tubes from China; plasma TVs from Korea and solar panels from Malaysia – all of which face significant import taxes designed to prevent damage within the domestic market due to undercutting competitors using cheap labour or illegal measures to attain the lowest possible price.
What is UK safeguarding?
UK safeguarding is another form of protection that has been put in place to protect local industries from outside competition. This type of legislation enables the government to quickly intervene and apply a temporary tariff which restricts the number of goods coming into a country when individual sectors are struggling or there may be negative effects on them if no action is taken – such as significant financial losses being incurred by UK steelworkers due to Chinese imports driving down prices so low they can’t remain profitable any longer.
Tariffs imposed under these conditions often only last for six months at a time but this provides businesses with an opportunity to regroup, restructure their workforce and find ways around less competitive costs before returning back to the market without fear of unfair trade practices destroying their business.
What are tariff quotas?
Tariff quotas are special import licences that enable certain goods to enter the country without taking part in standard customs procedures due to their nature and size. Quotas can be issued for particular materials or they can be implemented for specific export destinations.
Tariff quotas are put in place to allow for controlled amounts of goods to enter the country without having an impact on market values which is particularly important when there’s a high demand domestically but not enough supply being generated by UK companies.
Typically, these quotas are issued to reduce costs and increase production where necessary so they can be used as temporary measures until local businesses have revised their approach or found effective solutions to issues that have arisen due to increased competition.
What do you need to know about your product?
What do I need to know about my product? There are a number of factors you should consider when deciding whether your product needs its own commodity code in order to successfully process it through UK customs including:
The type of product
The first thing you need to consider is the type of product. Is it a raw material product or is it already processed or manufactured? What are its key characteristics and what role does it play in any subsequent production process?
Purpose of the product
What is your product’s purpose within your business model? How will this change over time as your company evolves and develops new ideas, concepts or opportunities for growth? Will there be an opportunity to use any surplus stock which can then be sold on directly rather than disposed of entirely? This may include excess materials that were purchased at bulk rates but don’t fit into current projects so can not be utilised without risking loss.
Materials used in production
How much do these material costs contribute towards overall sale prices? Can any of these materials be sourced domestically to help reduce costs and avoid lengthy import procedures?
Production methods & packaging
How was your product made or assembled? Are there specific requirements that need to be met in order for the product to remain safe during transport, such as temperature controls or humidity levels? How will you package your goods and what type of packaging is required in order for them to survive transit and arrive at their intended destination without sustaining damage?
Brexit’s impact on UK imports/exports
The full impact of Brexit on UK trade has still yet to become fully clear. A campaign of trade negotiations with various around the world is still ongoing as of the time this article was written.
Many people who voted for Brexit believed that leaving the EU would give the UK more leverage when negotiating its own trade deals around the world and in 2021, the UK signed trade deals with Japan, Australia and with the EU itself. However, opinions are divided on whether these deals will actually put the UK in a better position than it had pre-Brexit, with the benefits of the UK-Australian deal under particular scrutiny.
What is already clear is that British truck drivers have experienced increasing difficulties at UK ports and upon entering the EU. These have included long delays, increased bureaucracy and significant increases in requisite documentation which has resulted in vehicles being stuck at customs for hours. All of this is having a direct impact on British businesses that are reliant on time-sensitive deliveries to keep their operations running smoothly.
The hope is that as time goes and a “new normal” is established, these complications will begin to settle down. Whether this is the case is likely to depend on the outcome of further UK-EU negotiations and whether more streamlined trade agreements between both parties are reached.
An understanding commodity of codes is crucial for anybody engaged in imports and exports both in the UK and around the world. If you are unsure about any element of the commodity codes or other trade regulations that need to be followed, particularly in the post-Brexit era, get in contact with HMRC who will be able to advise you and ensure that you do everything by the book. This will enable you to pay any duties or VAT owed and will prevent any additional difficulties.