Fulfilment House Due Diligence Scheme | VAT Fraud Offences
The Fulfilment House Due Diligence Scheme (‘FHDDS’) introduced by the Finance (No.2) Act2017, is a government tool designed to disrupt and deter 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.
Tim Thompson briefly outlines the nature of the FHDDS.
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Application Requirements | Kangs HMRC Tax Solicitors
Any Fulfilment Business in the UK concerned in the storing of goods owned by an individual or entity based outside of the Jurisdiction, is required to obtain approval from HMRC prior to the commencement of any Fulfilment Business activity.
The intent is to render it more difficult for non-compliant overseas businesses to trade in the UK and to enable HMRC to identify and tackle defaulting companies more easily.
HMRC will publish a Register to allow businesses to establish that they are dealing with compliant Fulfilment Businesses.
HMRC guidance states that approval is required, if a business stores any goods that:
- were imported from a country outside the UK
- are owned by, or stored on behalf of, someone established outside the UK
- are being offered for sale and have not been sold in the UK before
The Fulfilment Businesses Regulations 2018
Once an application has been approved by HMRC, stringent obligations as set out in Part 3 of The Fulfilment Businesses Regulations 2018, become operative, including:
‘Customer not meeting UK obligations
8.—(1) An approved person must notify the Commissioners where the approved person knows or has reasonable grounds to suspect that a customer has not met a relevant obligation.
(4) An approved person must not commence business by way of a third country goods fulfilment business with a person where the approved person knows or has reasonable grounds to suspect that that person has not met a relevant obligation.
(5) In this regulation and regulation 9, a “relevant obligation” means a VAT or customs duty obligation under legislation in the United Kingdom in relation to third country goods
Notice to a customer of UK obligations
9.—(1) An approved person must give a notice to each customer that—
(a) contains specified information relating to relevant obligations,
(b) states that the approved person must notify the Commissioners where the approved person knows or has reasonable grounds to suspect that the customer has not met a relevant obligation,
(c) states that the approved person must as soon as reasonably practicable, cease to carry on a third country goods fulfilment business with that customer if, within 60 days beginning with the day on which the approved person first knows or has reasonable grounds to suspect that the customer has not met a relevant obligation, the approved person knows or has reasonable grounds to suspect that the customer is still not meeting a relevant obligation.
Customer due diligence and record keeping
10.—(1) An approved person must maintain a record of the following information—
(a) the name and contact details of each customer,
(b) the VAT registration number of each customer or, in cases where a customer is exempt from VAT registration, the reference number relating to that customer’s exemption from VAT registration issued by the Commissioners,
(c) a description of the type and quantity of the third country goods stored for each customer,
(d) any import entry number(6) of the third country goods stored for each customer,
(e) the country to which the third country goods are delivered from storage,
(f) a copy of the notice required to be given to each customer under regulation 9, and
(g) any specified further information relating to customers and third country goods.
Verification of a customer’s VAT registration number
11.—(1) An approved person must verify the—
(a) VAT registration number, or
(b) reference number relating to a customer’s exemption from VAT registration issued by the Commissioners (“VAT exemption reference number”)
held in relation to each customer in accordance with any specified verification process.
Change to registered details
12.—(1) An approved person must notify the Commissioners of any change in the registered details relating to that person.
Ceasing to carry on a third country goods fulfilment business
13. Where an approved person has ceased to carry on a third country goods fulfilment business, that person must notify the Commissioners within 30 days beginning with the day on which the activity ceased.’.
Penalties for Non-compliance
Criminal Liability
A business guilty of carrying on a Fulfilment Business, without HMRC approval, may be committing a criminal offence under section 53 of the Finance (No.2) Act 2017.
Conviction under that Act may result in:
a) a term of imprisonment for a period up to seven years,
b) a fine
c) both
Civil Liability
If a business is found to be carrying on a Fulfilment Business without HMRC approval, it may be liable to:
a) forfeiture of the stored goods (Customs and Excise Management Act 1979)
b) penalties of up to £3,000, for each contravention
How Can Kangs Help?
Kangs has been assisting and guiding clients involved in HMRC Investigations and Prosecutions for many years thereby accumulating a deep wealth of experience.
If you are, or anticipate becoming, the subject of any Investigation or Prosecution by HMRC, it is essential that you seek immediate expert advice from experts who will guide you through what will almost certainly be a complicated and worrying process.
The Team at Kangs Solicitors will be pleased to hear from you, and we welcome enquiries by telephone or email.
We provide an initial no obligation consultation from our offices in London, Birmingham and Manchester.
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