Tariff classifications are the foundation of customs. They drive the payment of taxes and work to address issues such as anti-dumping of specific goods, as well as determining control measures. The key aspect for any importer or exports is to get the tariff right, however, it is a fact that tariff codes are open to interpretation. It is therefore extremely important to carry out as much analysis as possible and if the situation is still unclear, they guidance will be needed to be sought from HMRC. If not penalties and sanctions will be applied. For many products the tariff that will apply to a product are obvious. However, there are some products that could have multiple uses and therefore different tariff codes could apply.
In 1987 the EU brought in legislation in order to provide a core common requirement among members on tariff coding. The EU has a significant interest in doing so to ensure the codes being used were not on the basis of those attracting the lowest duty. There some anomalies within the system, such as computers, which are under a mechanical coding, reflecting their construction years ago.
The EU system dictates that a 4 digit classification is sought first before moving on to 6,8 and 10 digit classifications. The explanatory notes within the Harmonised System offer a good source of guidance but be aware this is slow to up-date. If you apply these examples to your product it is legally binding on the authorities as it is their responsibility to ensure the information published is correct. However, there have been instances where at tribunal this ruling has been overturned.
General Interpretive Rules (GIRs)
GIR 1
- This is the most commonly used rule along with rule 6.
- The terms of heading and notes have legal force.
GIR 2
- This rule applies where goods are clearly one defined thing, and a part missing does not change this fact e.g. a motorbike without a source of power.
GIR 3
- Ideally a specific code should be found, but where this is not possible, this rule is applied e.g. a set of tools
- Where there are mixed composites, the essential character of the item will dictate the code. Some importers have used this rule to try and mix a majority of non-tariff products with high tariff products in order to avoid duty, but unless the mix makes a usable product any customs legal action will go against the importer.
- If no other codes can be found, the classification defaults to the last in the numerical order.
GIR 4
- Where there is no code for a product, the classification used is of closest match.
GIR 5
- This covers classifications for packaging of a product, however this excludes transport containers.
GIR 6
- Rule 6 extends the principal of rule 1 to subheadings. Look for a 4 digit classification in rule 1 before moving through to 6, then look through them again using 6 digits and then 8 digits.
It is important to note that HMRC can often interpret a classification code for a product as GIR3 when in fact it should be GIR1. A Tariff Note without any reference stated will use GIR3.
Tariff Classification Systems
The EU have developed a system called TARIC. You can search by different codes and provides information on import preferences, licences that apply, relevant legislation as well as historical data such as past duty rates.
THE USA have a system called the Cross Database. This system is arguable better than the EU system as you simply put the product you want classifying into the opening page. It also provides classification justification and there is no bias in terms of matching products to codes that will attract higher duty rates, unlike the EU system.
Binding Tariff Information (BTI)
Another EU developed system, product search will show you whether the product has previously been given a code via an EU ruling. If you have a BTI code you must declare it on each import, otherwise it is deemed a compliance failing. If you so wish it is possible to try and appeal a BTI.
The UK has now lost access to BIT information, but where this information is needed it is recommended the HMRC are requested to advise.
World Customs Authority (WCO) Explanatory Notes
This information, updated every five years, is provided by the WCO and is the most comprehensive world-wide information available.
Commission Classification Regulations
Such regulations come into play where member states cannot agree upon a classification regulation.
Classification of Parts and Accessories
Parts
To be defined as a part, the part must be required to make the main product function.
Accessories
To be defined as an accessory, the item must extend the use of a product, however check to ensure there is on an individual code for the item.
Parts of General Use
- Applies to base metal and plastic.
- Take care to ensure that a pipe, made specifically to match an engine is not defined as a metal pipe.
Classification of Assemblies
Sometimes products have their own specific codes, but when another feature is added to that part then it becomes a specific part designed and engineered to operate a main product.