HS 2022 is here
HS 2022, the latest update to the Harmonized System Nomenclature, comes into force on 1 January 2022. The widely-used system, published by the World Customs Organisation (WCO), provides a common basis for the classification of traded goods for Customs purposes and is a key resource for importers and exporters to determine the commodity codes of their goods.
The commodity code determines the rate of customs duty applicable at import, so any errors can have significant financial implications, and often result in penalties.
HS 2022 comprises of 351 sets of amendments, bringing significant changes across many sectors, including agriculture, chemicals, textiles, metals and machinery. The full list of changes can be found here. In October, the EU published it’s updated Combined Nomenclature to reflect the changes. It is expected that the UK will publish its updated version of the UK Global Tariff in December, and that the UK’s version will align with the EU’s.
Among the headline changes, many amendments have been made to ensure HS 2022 accommodates technological advances. Unmanned aircraft, more commonly known as ‘drones’, now get their own Heading to simplify classification (8806), and Smartphones now have their own sub-heading (8517.13). A clarification note is also added to cover ‘electronic textiles' such as garments which incorporate LED lighting.
Significant changes are made for Lighting products under Heading 9405, with a particular focus on keeping apace with changes relating to LED light sources; LED changes are also present under Heading 8539.
New Headings are also created for 3D Printers (8485) and for ‘Electrical and electronic waste and scrap’ (8549), whilst a new sub-heading has been created for edible insects (0410.10).
With textiles, the most notable changes come with woven coats and similar garments (6201 and 6202), where the sub-headings have been reconfigured and specific coding for ‘Parkas’ has now been removed.
If you import or exports any goods impacted by these changes, it is important to ascertain the correct commodity code you will be required to use from January. In order to avoid unexpected delays and issues with Customs declarations, consideration should be given to any systemic or process changes and updates which may be required, from internal systems and databases, to agent instructions and Standard Operating Procedures documents.
Crowe’s Customs team can review the accuracy of commodity codes, and also provide suitable training where required.
Claiming preferential duty rates
Taking advantage of the duty savings available through using the UK-EU Trade and Cooperation Agreement is a key tool in mitigating added costs as a result of Brexit, removing
the new duty cost for UK importers of goods from the EU, and helping UK exporters to the EU remain competitive.
But utilising the agreement in this way comes with strict evidence requirements, and businesses should be sure they are acting in a compliant manner to avoid unexpected issues down the line.
If claiming preferential tariff treatment upon import on the basis of “importer’s knowledge”, do you know the specifics of the production process? Or of the non-originating materials? This information (and more) must be held by the importer.
If you are a UK exporter being asked by EU customers to include a Statement on Origin on your invoice, are you sure that your products meet the requirements to be deemed of “UK origin”?
Rules of Origin and how preferential origin must be evidenced can be complex and care should always be taken in this area. This of course applies to all trade agreements, as well as when taking advantage of duty savings when importing from developing countries using the Generalised Scheme of Preferences (GSP).
The importance of INCOTERMS®
Incoterms® (‘International Commercial Terms’) are universally recognised rules for clarifying the responsibilities of the buyer and seller in international sale transactions, defining the allocation of obligations, costs and risk between the parties.
This will include, for example, which party is responsible for arranging the export and import customs clearance. They are comprised of eleven three-character acronyms which govern the responsibilities of the parties in the end-to-end shipment process, ranging from EXW (ex-works), to DDP (delivered duty paid).
The Incoterm® used can impact the customs value of a shipment, and can also influence whether a product is eligible for a preferential tariff rate or not.
Most importantly, the Incoterms used should be agreed and fully understood by the seller, the buyer and any intermediaries used for each shipment, as any failure to apply the incoterm correctly can result in customs compliance issues. As incoterms are usually agreed by sales and purchasing teams, it is important that they also understand the obligations attached to each incoterm.
Valuation
Customs valuation is one of the most complex areas of cross-border trade and is an increasingly common focus of customs audits.
The declared customs value is the basis on which customs duty is charged, so errors can have significant financial implications. Arriving at the correct customs valuation requires
consideration of complexities including royalties, assists, transfer pricing, Incoterms etc, which can all contribute to difficulties in determining the correct Customs value.
It is in this context that the EU is planning to soon introduce Binding Value Information (BVI) decisions to be issued at EU-level, with the intention to create a harmonised approach where currently scope for inconsistency exists within the approach between member states. Whether the UK will look to employ a similar system is not currently known.
Crowe’s Customs team can review the customs valuation methods used and advise on compliant best practice.
Instructing Customs agents
Most UK companies will engage a Customs agent on ‘direct’ representation terms, whereby the agent acts on behalf and in the name of a company. A consequence of direct representation is that full liability for the accuracy of the declaration falls on the company, with the agent not taking on any risk.
Instructions to Customs agents surrounding declarations should therefore always be clear and comprehensive.
Amongst other detail, when it comes to imports these instructions should note the type of import, the goods description and commodity code(s), whether preferential duty rates should be claimed, and the import VAT treatment to be applied.
Not providing detailed instructions and information can lead to unintended non-compliance, which can prove costly.
If you are interested in discussing this further or in using our ready-made template for instructing Customs agents, please reach out.