How to apply HS Codes in 2022

What are HS codes? 

HS (Harmonised System) tariff codes refer to calculated rates which are applied to all goods that are traded internationally. These codes are essentially a naming system developed by the WCO (World Customs Organisation) to categorise products, ensuring the correct tariffs are applied. This is essential as goods are categorised for their environmental, technological and social impact.  

The code is comprised of 6 digits which are drawn from over 5000 commodity groups. Each of these groups has 99 chapters, and furthermore, each of these has 21 sections. Often referred to as commodity codes, these digits are used to identify a particular product, which must be included in customs declarations for any goods entering the UK or EU. Keep in mind that the EU requires additional digits, including CN heading (Combined Nomenclature) and TARIC (Integrated Tariff of the European Communities) Subheading. 

As HS code categories are regularly developing to accommodate new products and materials. Much like VAT rates, staying up to date with the latest relevant categorisation is important. As an example of this, in January 2022, 870 HS codes were removed, and 940 added. 

Some additions include:  

• Electrical and electronic waste 
• Unmanned aerial vehicles (drones)  
• Smartphones have now gained their own category 

Why is having a HS code important? 

When trading internationally, applying a HS classification code to your goods is mandatory and if applied incorrectly you could be paying higher duty payments and damaging overall margins. Businesses using the IOSS (Import One Stop Shop) Scheme to report the VAT due on distance sales of imported goods will need to apply their IOSS number as well as the correct HS code on customs declarations attached to consignments.  

For all importing/exporting business, applying the right HS code for the goods you’re sending can speed up the customs process and make sure that your shipments pass through without incurring extra fees or delays. Ensuring you are using the correct HS code means you can also: 

• Know the exact amount of duty or import VAT you or your recipient should pay 
• See if the duty for your goods is suspended  
• Check if you need a license for your item(s) 
• See if your goods are covered by: 

Anti-dumping duties – this is an added tax duty placed on imported goods that are sold at a significantly lower price than their normal value. This protects domestic markets from damage in trying to compete with these below-average prices of imported goods. 

Tariff quotas – this refers to a limit placed upon the number of goods that can be imported/exported at reduced or no duty rates. This is also expressed via a ceiling system where quantitative limits are applied to certain goods from countries.  

Review your HS codes  

If you are importing or exporting goods internationally you will need to review and ensure you are applying the correct HS codes for each of your products. This can be done through your relevant governments’ website (UK exporters can check their codes here), or via the WCO’s website where you can find a comprehensive list of the 2022 HS Nomenclature.  

At SimplyVAT.com we can help you understand your international VAT compliance. If you have any questions about your VAT requirements or if you would like to review your VAT rates, get in touch with our team.