What is the Fulfilment House Due Diligence Scheme (FHDDS), and how does it affect me?
The Fulfilment House Due Diligence Scheme was introduced on 1 April 2018 by the UK Government in order to prevent sellers from outside the EU committing fraud when storing their goods in UK warehouses. It is common for sellers based outside of the European Union to make online sales to customers in the UK, and before these sales are made, they may hold their stock in a UK warehouse, waiting to be picked and packed once a sale on that product has been made. Although this is an efficient system which makes it easier for products to be shipped to the customer once an item is sold, the online sellers using UK warehouses do not always comply as they should do, and evade tax by not including UK import duties and VAT on the selling price. These incidents of tax evasion have resulted in an estimated £1.5 billion of duty and VAT that has not been collected.
Before the introduction of the FHDDS scheme HMRC made sure to consult with warehouse operatives and representatives of freight forwarding to ensure that the scheme would tackle the problem of tax evasion whilst not causing too much inconvenience for warehouse workers.
Which businesses have to apply for The FHDDS?
The Fulfilment House Due Diligence Scheme applies to the following:
Businesses who store goods that were imported from a country outside the EU
Businesses who store goods in the UK on behalf of sellers based outside the EU
Businesses who store goods that are being offered for sale and have not been sold in the UK before
If a business has already registered with the scheme, they are obligated to keep records, carry out regular checks on their overseas customers and the goods stored and report back to HMRC in order to inform them that compliance rules are being followed. If they suspect any of their non-EU customers are not meeting their UK tax and duty obligations, they have to notify HMRC within 30 days. If a customer has failed to meet an obligation, the business must cease supplying services to that customer within 60 days from when they first discovered this.
I am a cross-border trader – how does the FHDDS affect me?
If you trade with other countries and you store goods in a UK warehouse, the Fulfillment House Due Diligence Scheme may affect you if the business owning the warehouse has not yet applied for the scheme. If they fall under one of the categories above, they are required to follow the scheme, and not doing so means they could be allowing VAT fraud to take place as they are not keeping records on their overseas customers.
If they are discovered to be allowing fraudulent activity to take place, the warehouse could be shut down, meaning that your business will no longer be able to use their space to store goods and you could lose sales on your products. This is why it is important that businesses are registered for the FHDDS scheme if they are required to, and why you need to check that the warehouse you are using is FHDDS compliant. If you have any more questions on the FHDDS, please do not hesitate to give us a call on 0161 637 1080 or send us a message via social media, and we will be happy to advise you on this subject.
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