Brexit pushed a lot of businesses into having to deal with a lot of new rules which now form the nuts and bolts of moving goods around Europe so it is important to get them right.
Understanding how Tariff codes work is now a vital consideration that you must get right.
If you are going to avoid problems one vital step is to make sure the correct tariff or commodity code is being used. Before goods can be cleared through either the UK or the EU import systems a commodity code must be included in the customs declaration.
Tariff or commodity code is the DNA of a shipment of goods so unless you get them right you will find yourself having to pay VAT and /or import duty at the wrong rate and that will be expensive. This is a detail around any shipment of goods that you really need to get right or all manner of bad things can happen. It is all a case of look before you leap.
This is a detailed area that needs careful handling – you can read more here. Brexit has brought into play a whole raft of new considerations that businesses need to get to grips with.
The fundamentals are a good place to start and here are 4 key reasons why you should get the Tariff Classification sorted out properly:
1. Duty Rates
The tariff classification dictates the duty rate that you have to pay (which is not the same as finding the one that gives you the best rate).
2. Free Trade Agreements (FTA)
You will only know if goods qualify under a FTA by first finding the correct tariff classification for the product and then checking for how the goods might qualify under Specific Rules of Origin.
3. Anti-Dumping Duty & Quotas
Anti-dumping duty can be imposed on specific imports to protect local markets which is all tied into the tariff classification. Quotas can apply and these are also linked to the tariff classification. Duty rates under these headings can be high so getting the codes right and choosing the right time for the import can be really important.
4. Exports
Export licences and other certificates can be required and are also driven by the tariff classification.
If the wrong code is used it is always the importers fault, even if the code was chosen by the supplier.
If the goods are coming into the UK it is important that you use the UK Trade Tariff Tool at www.gov.uk to accurately categorise the goods and decide on the correct code. If you use the wrong code you could underpay import duties or cause the wrong rules to apply to the import and have restrictions or quotas incorrectly applied.
A commodity code is made up of pairs of digits, the first pair specifies the tariff chapter with subsequent pairs specifying the precise characteristics of the product in question. The six digits used in the UK follow the Harmonised System whereas the EU has added further digits up to as many as 14 digits in all.
Most tax authorities have now published their commodity codes online and the UK Trade Tariff Tool to is very user-friendly.
In addition you might also Email HMRC for advice classification.enquiries@hmrc.gsi.gov.uk or obtain a Binding Tariff Information (BTI) ruling by registering for the eBTI tool on the Gov.uk website and providing full details and images of the goods tariff.classification@hmrc.gsi.gov.uk
Deciding whether duty applies
Whether there is any import duty to pay on shipments to or from countries in the EU will depend partly on the tariff code and partly on the preferential rules of origin, which is in itself a complicated topic. This is not about where the goods were shipped from but where the goods themselves have to be treated as actually originating. Unless that place of origin can be confirmed as being in the UK or the EU, the same rates of duty will apply to the import as though the goods were being shipped from outside the EU. Getting the origin rules wrong can lead to a significant extra cost being imposed on the import as well as penalties. This all means that it is vital to understand the origin rules and not make any assumptions. The building blocks for deciding on whether preferential duty rates can apply include:
- Check whether there is a preference agreement in place.
- Check if the goods themselves are covered by the agreement.
- Check if the goods meet the strict rules of origin and obtain evidence.
- Include preference information on the Customs declaration.
- Consider if prior duty payments are correct and consider reclaims.
Melanie Lord – Director of AVS VAT – melanie.lord@avsvat.com We solve all kinds of VAT and Customs problems so please call us on 01438 716176 if you need help.