Time running out to register for Fulfilment House Due Diligence Scheme

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Unknown to some, the first deadline for applications to register for the UK’s Fulfilment House Due Diligence Scheme (FHDDS) is fast approaching – and businesses have to know whether it will apply to them.

If you have been providing the type of fulfilment service covered by FHDDS as at 31 March this year then you have until 30 June to submit your online application and avoid a financial penalty.

FHDDS applies to businesses which store goods brought in from outside the EU, which are owned by, or are stored on behalf of, a person or business based outside the EU, at a time when the goods are being offered for sale in the UK and elsewhere, and where the goods have not previously been sold in the UK.

Late applications will be accepted by HMRC, however a penalty of £500 will be charged for each month that the application is late, up to a maximum of £3,000. Only in truly exceptional circumstances will HMRC consider reducing the penalty.

A late application could also place it at risk of not being processed in time for your business to be registered by 1 April 2019. From that date onwards, providing this type of fulfilment service whilst unregistered will be a criminal offence carrying a maximum sentence of seven years imprisonment or you could be hit with a £10,000 civil penalty.

There is a later deadline of 30 September if you commenced providing the fulfilment service between 1 April and 30 June this year. Fulfilment businesses which start trading from 1 July onwards will need to apply by 1 October or on the date they start trading, whichever is the latter.

With the current level of applications falling well short of HMRC’s conservative estimate of the number of businesses which they believe will be caught by FHDDS and with an expectation of businesses looking at all of this at the eleventh hour, HMRC and UKWA hosted a briefing on Thursday 21 June, at which a number of points of relevance to the application process were confirmed:

• At this late stage, if you are in any doubt as to whether your business falls within FHDDS, HMRC recommend getting your application in and they will then work with you to determine if FHDDS applies to you. If it doesn’t, you can withdraw your application.
• There is nothing in the FHDDS legislation that excludes B2B fulfilment providers from having to register.
• No decisions on applications will be communicated before mid-August. The aim is to have made decisions on all applications by 31 December.
• All applicants should expect to be visited by HMRC as part of the process of consideration of applications. Only in rare instances will there not be a visit as part of the application process.
• Having AEO status will not automatically get an applicant through the process or avoid a visit from HMRC taking place.
• Applicants should prepare for their HMRC visits by considering the list of due diligence obligations which they will need to comply with from 1 April. These include:
• Notifying HMRC if you know or have reasonable grounds to suspect that a customer (that’s the owner of the goods or the person on whose behalf the goods are being stored) hasn’t complied with their VAT or customs duty obligations;
• Ceasing to do business with that customer if the customer doesn’t rectify the situation;
• Issuing an HMRC produced notice to the customer containing information about the Fulfilment House’s obligations under FHDDS;
• Keeping records for six years of the following information:

1. the name and contact details of each customer,
2. the VAT registration number of each customer or the reference number relating to that customer’s exemption from VAT registration,
3. a description of the type and quantity of the goods stored for each customer,
4. any import entry number issued for the goods,
5. the country to which the goods are delivered from storage,
6. a copy of the HMRC produced notice given to each customer, and
7. anything further that HMRC may decide to add in future relating to due diligence on the customer and the goods stored.

At this late stage, given the potential implications for businesses that file a late application, HMRC’s recommendation of ‘if in doubt, apply to register’ appears eminently sensible in the circumstances. With that ‘holding position’ in place, businesses can then either take prompt professional advice, if they are unable to do so by the 30 June, and then decide whether to press ahead or withdraw, or they can await the arrival and advice of HMRC before making that decision. The online application is straightforward and there is no application fee to be paid.

This is a guest post by transport and logistics law specialist Howard Catherall, of Gotelee Solicitors. Mr Catherall can be contacted at [email protected] or call 01473 298167.