Help with commodity codes

Knowing your Commodity codes.

What is a commodity code?

A Commodity Code is a type of classification code designated to any goods/products moving in or out of the UK. This numerical ten-digit number (it can be eight digits for export) conveys within it a number of important details including:

  1. What level of duty and VAT is applicable with your products upon importation into a country and if any preferential duties can be applied
  2. If your product must have an import license
  3. If any anti-dumping laws apply to your product 

The reason why the use of commodity codes (once you have got your head around them!) works so well is that they are agreed upon internationally and used consistently cross border, which enables the international trading of goods to be much easier to follow as the same code is applicable around the world.

Is this the same as a HS Code?

No, it isn’t although it sounds incredibly similar and many people do confuse the two terms.

For clarity a Harmonised System (HS) Code is an international standard for calculating Import Duty tax that is controlled by the World Customs Organisation (WCO). Like commodity codes, every HS code  describes a particular product and its qualities. It enables international governments to charge the right tariffs and its main function is to assist with tracking the trade flow of goods. It is also used in FTAs to help determine rules of origin and if any preferential status can be given.

However, the distinction can be seen when we understand that although commodity codes used in the UK are based on a part on the HS Code and uses the first six digits from the HS Codes, a commodity code goes further in its description.

You can see below how the commodity code is comprised: 

  • The first six digits are based on the HS code - this defines the product and are split between chapter, heading, and sub-heading
  • Digits 7 and 8 relate to what is called the ‘combined nomenclature‘ - this furthers define the product and is dependent upon the product
  • The final two digits relate to additional scenarios and another two digits can be added too, seen more so when the commodity code is being used for importation purposes

1              2              3              4              5              6              7              8              9              10
     HS Chapter            HS Heading          HS Sub-heading       CN Sub-heading     TARIC S/heading

Why are commodity codes important?

You may wonder why we are talking about considering your commodity codes when exporting… especially as they have relevance upon importation into the destination country to determine import duties. 

That is true however they are important for exporting too.

  • Firstly, as it is a legal requirement to declare your Commodity Code on your export documentation. Without them for goods entering the EU the export and import declarations can’t take place and any preferential tariff rates can’t apply.
  • The importation aspect could also be important as you, even as the seller, may be responsible for any import customs duties or VAT payable. This will depend on the Incoterms you are trading with, which is another important aspect of customs that you need to consider and get right.
  • Finally, even if your customer is the one taking care of the importation knowing the impact on pricing and any additional cost or complexity your commodity code carries is worthwhile knowing for your internationalisation plans. 

Each commodity code assimilates to a set tariff. This tariff are the taxes imposed by a government on goods imported from another country. The precise amount chargeable changes from one Commodity Code to another. Hence why it is critical to ensure you are using the correct commodity code.