Before we take a look at why HS Codes/Harmonized Tariff codes are important, let’s be sure that we understand what they are.
The HS Code or Harmonized System is a 6 digit standard classification of goods which is often referred to as a sub-heading. It is used globally across international trade in order to accurately identify traded products. These HS numbers/codes are used by customs authorities in every part of the world in order to allocate the correct rate of duty and tax for each product.
Make sure your goods sail through customs
Because these HS tariff codes are so vitally important, when you are completing any form of export or import paperwork that will be used internationally, you should always show correctly the 6 digit HS code and not the longer code. For example, these will always need to be on your commercial invoice for the goods; if you use the 10 digit code in error, the chances are that the code will not be accurate and all sorts of delays and problems may occur, costing you time and money.
Why do the Government customs authorities use these codes?
The HS Codes correspond to a tariff classification used by customs. This enables them to abide by a uniform identification system for all imported or exported goods. The correct amount of duty and tax can be allocated and with regard to the bigger picture, national laws can be enforced and the codes used when analysing data for economic purposes or trade negotiations.
Why are HS Codes important for companies?
Whether you are an importer or exporter, you have to use these codes as the correct classification of goods is a legal responsibility. If you fail to use them correctly then shipments will get delayed, more inspections may take place and you may find yourself hit with heavy fines and penalties.
These HS Codes are also vitally important when it comes to calculating your bottom line as they can save you time and money. This is because when customs look at your past history of imports, they may find that you have paid too much duty and not taken full advantage of the benefits of the tariff. Allocating the specific tariff often requires a great deal of knowledge of the product but this should be easily done by the importer or exporter who has access to the full Tariff and understands the method of classification. Some goods may also qualify for lower duty rates but this will depend upon their purpose or the related Certificates of Origin.
By getting to know how the classifications work, you can double check that your revenue in terms of taxes and duties is correct and can often work alongside your customs broker or consultant to ensure that it is absolutely right each time. In cases where the broker does not understand fully what the product is, then the importer has to provide details. However, in reality, what happens is that brokers email across a page from the Classification Index and ask the importer to pick out the correct 6 digit HS Code. This works well because it puts the onus on the importer who has the legal obligation to show the correct code every time.
How to keep track of your HS Codes
In order to be absolutely certain that you are not breaking the law and that you are listing the correct HS Codes, then it is a good idea to take the time periodically to review all the HS Codes that have been used historically whilst at the same time ensuring that your broker has a list of any new products that will be coming through the system.
When it comes to choosing the correct classification, you can look at the Classification list and check that the code given to you by your broker matches the actual description; however, the definitions used are based upon the Harmonised System are not always the ones that you would use normally. For example, the everyday definition of a product is not always what the HS definition dictates. One way to check is to get access to the Explanatory Notes (EN) that coincide with the Harmonised System; this should be available on the Government customs websites. Alternatively, you can use this HS Code look up system or one of the SimplyDuty product classification APIs.
With this in hand, you can now check the classifications of your products, which will also show the customs office that you have taken all reasonable care. It is very important to do this as the law states that the importer is totally responsible for showing the correct HS Code on every entry submitted in their name.
What happens if you get it wrong?
If you find that you have used incorrect classifications in the past and have to go back to your broker to ask for amends to be made, you may find yourself faced with the following:
• The duty remains the same – in this case, you may be lucky in that customs will not issue a penalty fee due to the incorrect classification. However, it is essential to bear in mind that what you are doing now should have been done correctly at the start, therefore, time would not have been wasted.
• Duty has been overpaid – this is your error so you will not receive any refund.
• Duty has been underpaid – you will need to pay the difference in duty and wait to see if customs charge you any interest or fines/penalties.
At the end of the day, there may be a lot of work involved in getting your HS Codes correctly classified but as an importer or exporter, this is part of your role and a legal requirement. You need to make sure that you have access to all of the necessary classification resources and that you take the time to get them right, no matter the assortment of products being imported or exported. In order to prevent errors creeping in, you need to have in place a robust system of compliance and a process that ensures that you take reasonable care all of the time.