Policy paper

Fulfilment House Due Diligence Scheme

Published 5 December 2016

Who is likely to be affected

UK fulfilment houses that handle imported goods on behalf of third parties located outside the EU.

General description of the measure

The Fulfilment House Due Diligence Scheme is part of a package of measures announced at Budget 2016 that will disrupt and deter abuse by some overseas businesses selling goods to UK customers via online marketplaces. Fulfilment businesses in the UK will have to register with HM Revenue and Customs (HMRC) from 2018, keep certain records and carry out robust due diligence checks on their overseas customers. This will make it more difficult for non-compliant overseas businesses to trade in the UK and will enable HMRC to identify and tackle them more easily. HMRC will publish the register to allow businesses to check whether they are dealing with compliant fulfilment businesses.

Policy objective

The measure will tackle non-compliance by some overseas businesses and ensure a level playing field for compliant businesses in the UK.

Background to the measure

At Budget 2016 the government announced the introduction of the Fulfilment House Due Diligence Scheme in 2018 and HMRC consulted on the design of the scheme over the summer.

Detailed proposal

Operative date

The measure will have effect on 1 April 2018. Existing fulfilment house businesses should apply to register with HMRC by 30 June 2018. New fulfilment house businesses, established after 30 June 2018, will need to apply to register 45 calendar days in advance of the date they intend to commence trading.

Current law

This is a new scheme that will be free standing in Finance Bill 2017.

Proposed revisions

Legislation will be introduced in Finance Bill 2017 to implement the Fulfilment House Due Diligence Scheme. This will set out the scope of the scheme and require affected businesses to register with HMRC. Secondary legislation will require registered fulfilment businesses to keep certain records and carry out due diligence checks on their overseas customers. There will be new legislation to provide the necessary penalties to enable HMRC to assure the scheme. A new criminal sanction is being considered, subject to clearance by the Home Affairs Committee.

Legislation will be introduced in Finance Bill 2017 to allow HMRC to publish a register of fulfilment houses. This will encourage compliance by allowing businesses to check whether they are dealing with compliant fulfilment businesses.

Summary of impacts

Exchequer impact (£m)

2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
-	+65	+130	+315	+365

These figures are set out in Table 2.1 of Budget 2016 as ‘Value Added Tax: tackling overseas trader evasion’ and have been certified by the Office for Budget Responsibility. They represent the combined Exchequer impact of the Fulfilment House Due Diligence Scheme and the new HMRC powers to deal with overseas businesses also announced at Budget 2016 that came into force with Finance Act 2016. Further details can be found in the policy costings document published alongside Budget 2016.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing accounts for a behavioural response whereby some overseas businesses or fulfilment houses may find ways to mitigate the impact of this measure.

Impact on individuals, households and families

This is a VAT compliance measure, and could result in a minor increase in inflation which would increase prices. It is expected to have a negligible impact on individuals and households, and is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It’s not anticipated that there will be any impacts as those directly affected are mostly corporate entities.

Impact on business including civil society organisations

This measure will help to tackle non-compliance by some overseas businesses and ensure that compliant businesses compete on a level playing field.

Affected businesses will incur one-off compliance costs of registration and familiarisation with the new scheme.

Businesses registered for the Fulfilment House Due Diligence Scheme will be required to keep records in relation to relevant goods. They will also be required to carry out due diligence checks on their overseas customers and issue them with a standard notice setting out their VAT and duty obligations. This will ensure that they have controls in place to identify what goods are stored on their premises and retain details of the overseas owners of such goods.

The overall impact upon fulfilment houses will depend upon how many businesses register for the scheme, and the final design of the scheme.

This measure is not expected to have any impact on any civil society organisations.

Operational impact (£m) (HMRC or other)

HMRC expects to incur one-off capital costs to develop the system to register affected businesses. There will also be ongoing resource costs for HMRC to implement this change and monitor compliance.

Other impacts

Justice Impact Test: there may be a minor impact on the Tribunal Service. A Justice Impact Test will be prepared and HMRC will liaise with the Ministry of Justice to ensure that resources are in place.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected taxpayer groups and ongoing enforcement and compliance activity.

Further advice

If you have any questions about this change, please contact Martin Jones on Telephone: 03000 593311 or email: martin.jones@hmrc.gsi.gov.uk.