21/12/23

Fulfilment House Due Diligence Scheme | HMRC Investigations

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The Fulfilment House due Diligence Scheme (‘FHDDS’) was introduced by the Finance (No 2) Act 2017 to prevent the abuse of the tax system in relation to goods imported from outside of the Jurisdiction by overseas businesses selling goods to UK customers via online marketplaces.

Fulfilment businesses store and deliver goods in the UK sourced from outside of the Jurisdiction for sale online to UK customers.

HMRC is concerned to ensure that any Fulfilment business properly accounts for VAT arising from its trading activities by making it more difficult for non-compliant overseas companies to trade in the UK.

Naz Maqsoom of KANGS outlines the Scheme and the consequences of non-compliance.

The Team at KANGS offers a wealth of experience and expertise gained from representing companies, directors and individuals facing investigations by HMRC whether of a criminal or civil nature.

Should you require any initial advice, our Team can be contacted as follows:

Application Requirements | KANGS HMRC Tax Solicitors

An Application for approval must be made on or before the day on which a person commences carrying on an imported goods fulfilment business.

The relevant Application Form is Notice 18, using the online FHDDS service. Large amounts of information will be requested for this application.

A Fulfilment business must be approved by HMRC before commencement of trade and must trade in accordance with that approval or apply to vary any condition or restriction applied by that approval.

HMRC may:

  • grant approval only if satisfied that the Applicant is a fit and proper person to carry on the business (see below)
  • limit the periods of trading, or make trading subject to conditions or restrictions
  • vary the terms of, or revoke, an approval.

HMRC can either.

  • accept or reject the Application,
  • request further information and inspect the business premises.

If an Application is rejected:

  • reasons must be given for the refusal
  • it may be possible to apply for a temporary approval whilst a Review or Appeal of that decision takes place.

Note:

  • An existing Approval cannot be transferred to the new owner when a business is sold.
  • HMRC must be notified about the change of ownership at least forty five days before the date the business intends to trade under the new ownership.

Customer Due Diligence and Record Keeping | KANGS Regulatory Solicitors

Once an Application has been approved by HMRC, stringent obligations as set out in Part 3 (10) of The Fulfilment Business Regulations 2018 become operative requiring, inter alia, the maintenance by an approved person of records showing:

  • the name and contact details of each customer,
  • the VAT registration number of each customer and information regarding any exemptions,
  • a description of the type and quantity of the imported goods stored for each customer,
  • any import entry number of the imported goods stored for each customer,
  • the country to which the imported goods are delivered from storage
  • a copy of the notice required to be given to each customer under regulation 9, and
  • any specified further information relating to customers and third country goods.

The information must be retained for a period of six years and be made available to HMRC when required.

Penalties For Non-Compliance and VAT Assessments | HMRC Enforcement

The operation of a Fulfilment Business without approval may result in a criminal or a civil penalty.

In addition, any goods stored are liable to forfeiture if that storage constitutes, or has constituted, the carrying on of a Fulfilment Business.

Companies

All or part of any penalty imposed upon a company, including any body corporate or unincorporated organisation, but not a partnership, may become the liability of any officer if the contravention was attributable to him.

Officer in this context, means in respect of:

  • a body corporate, other than a limited liability partnership, a director (including a shadow director within the meaning of the Companies Act 2006, s 251), manager, and secretary
  • a limited liability partnership, a member
  • any other case, a director, manager, secretary, and any other person managing or purporting to manage any of the company's affairs

Approved person

HMRC may impose a penalty, not exceeding £3,000, for any contravention.

An approved person is liable to a penalty for failure to comply with:

  • due dates for the submission of an application for approval,
  • any condition or restriction to which an approval is subject, or
  • the obligations set out in Part 3 of the Regulations of the Finance Act (No.2) 2017.

HMRC will assess the penalty, notify the individual and set out the contravention being assessed. The assessment must be made not later than one year after evidence of facts sufficient, in the opinion of HMRC, to indicate the contravention, comes to its knowledge.

The penalty must be paid before the end of thirty days beginning with the date of notification. The amount of the penalty is recoverable as a debt to the Crown.

Defences may available, such as the defence of ‘reasonable excuse’.

A penalty may be reduced if the contravention is declared voluntarily to an unaware HMRC.

An Officer/Business may appeal against any decision by HMRC regarding liability and/or penalty imposed.

Who Do I Contact for Help and Advice? | Kangs Regulatory Offences Defence Solicitors

The Fulfilment House Due Diligence Scheme imposes many technical issues for consideration and, in addition to potential procedural issues, such as requests by HMRC for documents disclosure or the service of Notices of Assessment events may occur demanding urgent attention such as:

  • responding to possible contraventions that may have occurred and whether they should be disclosed
  • an organisation in your supply chain has been searched and your goods awaiting transport have been seized.

In such circumstances, you will require immediate expert advice and guidance and the Team at KANGS would be pleased to provide assistance.

Our Team will support you throughout the entirety of any HMRC investigation or proceedings, seeking to achieve the most satisfactory outcome available as quickly and economically as possible.

If we can be of assistance, please do not hesitate to contact our Team through any of the following channels:

Telephone: 0333 370 4333

Email: info@kangssolicitors.co.uk

We provide initial no obligation discussion at our three offices in London, Birmingham and Manchester. Alternatively, discussions can be held virtually through live conferencing or telephone.

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