As a UK warehouse operator storing goods for sellers established outside the European Union, International Forwarding is ready for a new government scheme which aims to crack down on tax evasion by unscrupulous online retailers. IFL Director Roy Baker guides our non-EU customers through the UK’s new Fulfilment House Due Diligence Scheme – or FHDDS for short.
With the growth of e-commerce it is common for sellers based outside the European Union to make online sales to customers in the UK. For a more efficient delivery service, many also store their stock in a UK warehouse, ready to be picked and packed as orders are received. International Forwarding (IFL) offers a storage and pick-and-pack service, for example, as part of its logistics, warehousing and cargo handling suite of services. All good so far.
However, while the goods for online marketplaces may be stored in the UK, the selling price still needs to take account of any UK import duties and VAT – and some unscrupulous e-retailers are taking advantage of the lack of control and regulation of these e-commerce sales to evade tax. In fact, the government estimates that £1.5billion of duty and VAT is not being collected. As well as being a huge sum, it’s also a situation that is unfair to those retailers who do pay the correct taxes.
What is the FHDDS?
To help combat tax evasion in this area, a new Fulfilment House Due Diligence Scheme (FHDDS) has been introduced from 1 April 2018. The concept was included in the Finance Act 2017 and HM Revenue and Customs (HMRC) has consulted widely with representatives of freight forwarding and logistics operators to produce a scheme that will address the tax evasion problem while not be too onerous for warehouse operators to carry out.
FHDDS actually goes ‘live’ from April 2019 – from that date, warehouse operators will need to feature on the register in order to trade as a fulfilment house for non-EU-supplied goods. Any operator deemed to be within the scope of the scheme and who has not registered by then will be liable to a fine of up to £3,000. An operator that continues to trade as a fulfilment house without being registered then risks a £10,000 penalty and a criminal conviction.
Next steps for warehouse operators
The FHDDS scheme is based on warehouse operators applying for registration and Clause 48 of the Finance Act 2017 sets out the criteria. Or you can find further information on Gov.uk here. The three main responsibilities of operators are to:
- Register for the scheme
Put simply, freight forwarding and logistics operators must register if they store third country goods that are unsold at the time of receipt into the warehouse. The goods must be owned by a person who is not established in an EU member state or on behalf of a person not established in an EU member state. (Goods stored in a customs-bonded warehouse are not covered as existing controls here are seen as adequate to ensure the payment of sums due for duty and VAT.)
- Carry out checks on your overseas customers and the goods you store
The forwarder/logistics operator must not assume that just because a retailer based outside the EU is VAT-registered in the UK and has a UK address that the company is an established taxable operator. VAT Notice 700/1 states that this can only happen if the business carries out its central administration and decision-making in the UK and has a permanent physical presence to enable it to make or receive taxable supplies in the UK.
- Keep accurate records
FHDDS registration also brings with it the responsibility for the forwarder/logistics operator to accurately record details of duties and VAT applicable to each transaction when goods are sold to a UK buyer, together with evidence that the sums have been paid to HMRC.
EU health and safety compliance
Running parallel to the new FHDSS is the existing obligation on warehouse operators to ensure that products imported from non-EU member countries comply with EU health and safety rules and meet other compliance requirements.
This particularly applies to electrical goods and children’s toys, and requires the warehouse operator to ensure that employees have the training and knowledge to make certain that electric kettles, for example, are not despatched to the UK customer in a dangerous condition. Failure to do this may mean that trading standards officers will take action against both the overseas supplier and the warehouse operator.
IFL – ready for the FHDDS
Importing into the UK can be a complex field to navigate. To help steer our non-EU customers who wish enter the UK e-commerce market through the appropriate rules and regulations, the International Forwarding sales team will be pleased to answer your questions. This can be coupled with costings for the provision by International Forwarding of warehousing facilities and data systems that comply with the requirements of FHDDS.