VAT rules for UK Fulfilment house handling imported goods

In the 2016 Budget, the UK Government announced its intention to introduce a new online scheme for UK fulfilment houses from 2018, which will set out standards of due diligence and record-keeping, and introduce penalties for non-compliance.

Non-EU traders who sell goods (located in the UK at the time of sale) to UK consumers, mainly via online marketplaces, are not always paying the correct VAT and duty to HMRC. These goods are normally shipped to the UK prior to sale and stored in fulfilment houses close to their final delivery point. This abuse has grown significantly and now accounts for £1-1.5bn of the total VAT gap.  The government has announced a comprehensive package of measures to disrupt and deter this 21st century fraud. It is targeting non-compliant overseas traders themselves by making them appoint a UK tax representative who will be liable for their VAT and/or seeking a security. If these traders fail to comply and online marketplaces do not help stop the abuse occurring, the online marketplaces themselves will become jointly and severally liable for the unpaid VAT.

The Fulfilment House Due Diligence Scheme (FHDDS)

Registering fulfilment houses is another part of the solution. Many overseas suppliers that trade online make use of UK-based fulfilment house businesses to store, pack and/or deliver their online orders. A due diligence scheme will make it more difficult for non-compliant suppliers to trade in the UK and will enable HMRC to identify and tackle them more easily. The scheme will set out ‘fit and proper’ standards that fulfilment houses will need to meet in order to operate. Fulfilment houses will have an obligation to register and maintain accurate records. They will also have to evidence the due diligence they have undertaken to ensure that their overseas client is a bona fide supplier. A bona fide overseas supplier is one that is either VAT registered in the UK, or legitimately non-registered here either because they make no supplies in the UK or operate from an establishment in the UK and are trading below the registration threshold.

Businesses using fulfilment houses for the storage and distribution of their goods will need to comply with their obligations to register for VAT and declare the correct amount of VAT and duty if they want to continue operating through legitimate fulfilment houses. HMRC will publish a list of registered fulfilment houses so that freight and customs agents, Fast Parcel Operators, Express Industry and other businesses will know whether the fulfilment house they are consigning goods to or from is registered or not.

If you are a UK Fulfilment house and you need to understand in more detail how the FHDDS is going to affect your business and what steps you must take in order to become compliant, please contact RKG Consulting.