by Samantha Bridger, Bridger Consultancy
Mobile: 07850 252635
In a recent poll I did on LinkedIn 71% of respondents said that more information on customs stuff would be most helpful to them right now. I suspect that lack of knowledge or expertise around customs is a big reason that companies put off trading internationally and have problems, particularly now when the rules seem to be changing constantly.
Let’s face it, it isn’t the most interesting topic either except to the ardent international trade nerd. It starts with terminology. When you understand and use the common terms, then there is less cause for misunderstandings and less chance of nasty surprises so here are 6 terms which will help get your goods where they need to be.
1. Let’s start with customs duties themselves. Customs duties are a tax payable to HMRC on goods imported into the UK. In the same way, goods exported will also be liable to pay duty by the importer, payable to the customs authority in that market/country.
Now that the UK is no longer part of the EU, you may notice you have to pay duty on goods you received from overseas, even if it is a gift, depending on the value.
In addition to customs duties, there is also VAT, which is also collected by HMRC, but this is a separate tax and is charged at 20% on most goods & services.
2. One of the most important terms for me is the commercial invoice. This might sound too easy, but it still catches companies out. The key here is a description in plain English of what is in the shipment, explaining what it is, what it is made of and should cover all items in the shipment. Many companies use their own product description, which might not be so clear to everyone else., particularly to a customs official whose native language is not English. E.g. I advised one client to use the description cow leather instead of bovine hide.
3. Here you need a description of the goods. This might sound too easy, but it still catches companies out. The key here is a description in plain English of what is in the shipment, explaining what it is, what it is made of and should cover all items in the shipment. Many companies use their own product description, which might not be so clear to everyone else., particularly to a customs official whose native language is not English. E.g. I advised one client to use the description cow leather instead of bovine hide.
4. Each product should have a tariff code. These are harmonised tariff codes, and incredibly important because they identify which classification the goods belong to and are used to determine which taxes, duties and other controls may apply. We will talk more about these in a later article and show you how to find the right one.
5. The commercial invoice should show what Incoterms® you have agreed with your supplier/customer. These are a common set of trading rules published by the International Chamber of Commerce and are an internationally recognised standard for international trade. They are updated every 10 years, lastly in 2020 (Incoterms® 2020). Used correctly, they will identify what is included in the price, and who is responsible for what.
6. To start trading internationally you will need an EORI number. You may have heard about this a lot recently, with the government telling us we need one. EORI stands for Economic Operator Identification Registration Number and is a unique identification used in customs declarations across the EU and UK. Any company wanting to import or export needs one and can apply to HMRC to get one.
That’s a small flavour of the importance of terminology in international trade. If you are hungry for more, take a look at my glossary here.
Next time, we’ll have a deeper dive into customs duties and tariff codes. In the meantime, if you have any questions, post them in the comments.