Fulfilment House Due Diligence Scheme to target VAT evasion by non-EU online traders
Jan Garioch CA reports on the requirements of the Fulfilment House Due Diligence Scheme.
Introduced on 1 April 2018, businesses now have an obligation to register under the Fulfilment House Due Diligence scheme if they store goods in the UK which (a) have been imported from outside the EU, (b) are owned by (or on behalf of) someone who is established outside the EU and (c) the goods are being offered for sale and have not been sold in the UK before.
The deadline for affected businesses to apply to be registered by HMRC is 30 June 2018. Late application penalties apply and trading without a registration risks conviction and a penalty of £10,000.
Businesses that only store goods which they own themselves are not required to register. The same applies for businesses that only store goods that are not imported from outside the EU.
Where transport companies only store goods imported from outside the EU temporarily as part of the provision of their service, again they are not required to register.
The aim of the Fulfilment House Due Diligence scheme is to combat non-compliant businesses which do not pay VAT or Customs Duty when they are due. Therefore, where a registration under the scheme is required, the fulfilment house will be required from 1 April 2019 (i.e. a 12 month lead time) to keep records on their customers outside the EU for whom they store goods and do due diligence checks.
The details to be recorded include customer name and contact details, their VAT registration number or VAT exemption reference, the type and quantity of goods stored and the country where the goods are delivered. It is also necessary to record that notices explaining VAT and duty obligations in the UK have been delivered to the customers.
The required due diligence is to verify all of the overseas customer's VAT registration numbers and, if the overseas customer is not required to be VAT registered, their HMRC VAT exemption reference must be checked. HMRC promise to provide more information on how to verify these numbers before 1 April 2019.
If overseas customers are suspected of failing to meet VAT and/or duty obligations, businesses registered under the Fulfilment House Due Diligence scheme are required (a) to work with their customer to ensure future compliance, (b) to notify HMRC and (c) to stop working with their customer if they do not comply.