Written by Alex Sharp, Customs Specialist at ChamberCustoms
Introduction
Commodity codes, also known as tariff codes or HS codes, form the foundation of customs declarations. They’re not just administrative labels; they determine how goods are treated at the border and how much is paid in duties and VAT.
Despite their importance, many businesses overlook them until a problem arises.
In my consultancy work, I’ve seen the consequences of misclassification play out in real time. Businesses have faced substantial repayments to HMRC after years of using incorrect commodity codes, often without realising it. These repayments are frequently accompanied by fines for each instance of misclassification. The financial impact can be serious, and the reputational damage even more so.
These aren’t isolated incidents. They’re common, and they’re entirely avoidable with the right expertise and attention to detail.
How Commodity Codes Work
Commodity codes aren’t random numbers – they follow a structured, global system.
First two digits – the chapter (broad product category)
Next two digits – the heading (a narrower category)
Final two digits – the subheading (a specific product type)
These first six digits are harmonised worldwide under the Harmonised System (HS), meaning that goods classified in the UK will be recognised under the same HS structure globally. Beyond six digits, countries add their own extensions. In the UK, import codes extend to 10 digits, while export codes extend to 8 digits.
This structure is why even a single digit difference can change duty rates, licensing requirements, or origin criteria.
Why Classification Matters
The commodity code assigned to a product influences several critical areas:
Duties and VAT
First and foremost, the commodity code determines the rate of import duties and VAT. If it’s incorrect, the financial implications can be substantial – whether that’s underpaying (and facing penalties and years of backdated repayments), or overpaying (and losing out on potential savings).
Licensing Requirements
Classification also affects licensing. Certain codes require import or export licences, and using an inaccurate code can result in goods being held at the border. I’ve worked with businesses whose shipments were detained by Border Force due to licence mismatches caused by incorrect coding.
Trade Statistics
Accurate classification plays a vital role in compiling reliable trade statistics. These figures are used by governments and international bodies to monitor trade flows, assess economic performance, and shape trade policy. When businesses misclassify goods, the data becomes distorted, which can lead to misguided decisions at a national and international level – affecting everything from tariff negotiations to supply chain planning.
Free Trade Agreements & Origin
Classification is central to determining eligibility for preferential duty rates under Free Trade Agreements. The commodity code helps establish whether a product qualifies for reduced or zero tariffs based on its origin.
If the commodity code is incorrect, businesses may:
Miss out on duty savings
Claim preferences they’re not entitled to – leading to penalties and repayment demands
Getting this right is crucial not just for compliance, but for maximising the benefits of trade agreements.
What many businesses don’t realise is that changing the commodity code can also change a product’s origin status. Each code comes with its own origin criteria, such as processing requirements or value thresholds, and these vary significantly across product categories.
A product that doesn’t meet the origin rules under one code might qualify under another, provided the classification is accurate and justifiable. This makes correct classification not only a compliance issue but a strategic opportunity. By understanding how origin rules interact with commodity codes, businesses can potentially unlock duty savings they didn’t know were available.
HMRC customs Audits
During an HMRC Customs Audit, the commodity code is often the first thing reviewed – and in some cases, it’s the only thing! That’s because HMRC’s role is to collect duties and VAT, and the commodity code directly determines what’s owed. It’s not just a technical detail; it’s a financial trigger.
If you’re uncertain about your current commodity codes, it’s worth reviewing them now — before HMRC does.
Common Challenges
Classification isn’t always straightforward.
One frequent issue is vague product descriptions. Products made from multiple materials or with multiple functions can be difficult to categorise. If a business describes an item as a “key ring” without specifying its function or material, it’s almost guaranteed to be misclassified. Is it a toy to hang onto a child’s school bag or a useful tool to keep your car and house keys together? These distinctions matter – and they’re not always obvious.
Another challenge is that the UK Global Tariff itself is subject to regular updates. What was correct last year may no longer be valid today. Businesses must stay informed and complete regular reviews or risk falling out of compliance.
If you’re not confident that your product descriptions or commodity codes are still correct, our advisors can review them and give you peace of mind.
Real-World Experience
I’ve helped companies navigate all of these challenges first-hand:
One client was fined for using a commodity code that didn’t reflect the product’s actual use
Another faced a lengthy dispute with HMRC, leading to a full audit and reclassification
In another case, goods were detained due to licence issues – all traced back to the commodity code
These examples aren’t rare; they’re everyday occurrences when classification is treated as a formality rather than a strategic decision.
Practical Advice
So how can businesses get classification right?
Take responsibility – Don’t rely on suppliers or other traders to determine your commodity code; it's your legal obligation.
Use the UK Trade Tariff tool – This is an essential starting point for checking commodity codes and understanding duty implications.
Keep detailed product information - Technical specifications and product data are invaluable if you need to justify your classification.
Seek expert advice – ChamberCustoms have specialised advisors in classification and direct communication links into government policy through the British Chamber of Commerce.
Consider applying for a Binding Tariff Information (BTI) ruling – this legally binding decision provides certainty and protection during HMRC audits.
Summary
Getting commodity code classification right is far more than a compliance exercise – it’s a strategic necessity. The right commodity code ensures you:
Pay the correct duties and VAT
Avoid costly fines and delays
Unlock opportunities for duty savings under Free Trade Agreements
Misclassification, on the other hand, can lead to significant financial and reputational damage.
By investing in accurate classification, staying up with tariff changes, and seeking expert advice, businesses can protect themselves and maximise the benefits of international trade.
Don’t wait until HMRC are knocking at the door – contact ChamberCustoms today to review your commodity codes, safeguard your compliance, and unlock new trade opportunities with confidence.