Guidance

Fulfilment House Due Diligence Scheme Regulations — penalties and sanctions

Updated 4 March 2022

If you store, handle or ship goods for customers from outside the UK before they’re sold to UK customers, you must follow the Fulfilment House Due Diligence Scheme (FHDDS) Regulations. This factsheet tells you about the penalties we may charge, and other sanctions we can use, if you don’t comply with those regulations.

In this factsheet we call non-compliance with the regulations a ‘contravention’.

This factsheet is one of a series. For the full list, go to GOV.UK and search for ‘HMRC compliance checks factsheets’.

If you need extra support

If your health or personal circumstances make it difficult for you to deal with us and you need extra support, please tell us what help you need. We’ll work with you to put in place any reasonable or supportive adjustments. For more information, go to GOV.UK and search ‘get help from HMRC’.

You can also ask someone else to deal with us on your behalf. For example, a professional adviser, friend or relative. However, we may still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

About the FHDDS

The FHDDS is a mandatory approval and monitoring scheme for UK businesses. It’s designed to prevent VAT fraud involving overseas customers using UK fulfilment houses.

Under the FHDDS, fulfilment houses must make sure their customers comply with their tax and customs obligations. To operate legally, they must register with HMRC and have an approval to trade as a FHDDS.

For more information about registering, go to GOV.UK and search ‘Apply for the Fulfilment House Due Diligence Scheme’.

Penalties for trading without an approval

We may charge you a ‘failure to notify’ penalty if you:

• don’t apply for the FHDDS approval at the correct time
• carry on a fulfilment business but aren’t an approved person.

A ‘failure to notify’ penalty is a ‘behavioural’ penalty. We explain what a behavioural penalty is in the ‘How we work out the penalty amount’ section.

We may also charge fixed penalties and use other sanctions if you’re registered but you contravene any condition or restriction imposed as part of your FHDDS approval. For more information about these penalties, go to the ‘Other penalties for contravening FHDDS obligations’ section.

If you ask someone else to act on your behalf, you must take reasonable steps to make sure they don’t contravene the scheme rules. If you don’t, you may be liable to a penalty.

When we won’t charge a penalty for an FHDDS contravention

We won’t charge a penalty if you can show you had a reasonable excuse for (either):

• carrying on a fulfilment business without approval
• trading without being approved at the correct time.

A reasonable excuse is something that stopped you from meeting a tax obligation on time, which you took reasonable care to meet. It might be due to circumstances outside of your control or a combination of events. Once the reasonable excuse has ended, you must put things right as soon as you can.

A reasonable excuse depends on the circumstances of the failure to meet the obligation and your situation and abilities. This may mean what a reasonable excuse is for one person may not be a reasonable excuse for someone else. If you think you have a reasonable excuse, please tell us. If we accept you have a reasonable excuse, we won’t charge you a penalty.

If your health or personal circumstances made it difficult for you tell us you should have registered, please tell the officer carrying out the check. Telling them means they can take this into account when considering whether you had a reasonable excuse.

A reasonable excuse won’t apply if we decide your behaviour is deliberate. We explain what deliberate means in the ‘How we work out the penalty amount’ section.

How we tell you about a penalty

If we decide to charge you a penalty, we’ll write to tell you how much it is and how we’ve worked it out. If there’s anything about the penalty you don’t agree with, or you think there’s any information we haven’t considered, please tell us.

After taking account of anything you’ve told us, we’ll either send a penalty assessment notice or invite you to enter into a contract with us to pay the penalty.

How we work out the penalty amount

We’ll work with you to find out what type of behaviour led you to trade without approval. We’ll use that behaviour type to help us decide if we’re going to charge a penalty, and the amount of that penalty.

There are 3 behaviour types, these are:

• non-deliberate
• deliberate but not concealed
• deliberate and concealed.

For example, deliberate behaviour is when a company officer continues to trade knowing they no longer have FHDDS approval.

Non-deliberate

The non-deliberate penalty applies unless:

• the behaviour is deliberate
• the person has a reasonable excuse.

Deliberate but not concealed

Trading without approval is deliberate but not concealed if the person:

• knows they need to be registered
• doesn’t get an approval at the correct time
• doesn’t take active steps to conceal a deliberate failure.

For example, if a person has deliberately failed to keep any records of their business transactions. This is different to actively concealing or destroying them.

Deliberate and concealed

Trading without approval is deliberate and concealed if the person:

• knows they should be registered
• doesn’t get an approval at the correct time
• takes active steps to conceal the fact they need to be registered.

Examples of taking active steps to conceal include:

• destroying or concealing records which show evidence of trading as a fulfilment business importing goods
• concealing the use of premises used to carry on as a fulfilment business importing goods
• misrepresenting the nature of the business’ activities to give a false impression that they’re not a fulfilment business importing goods.

How we work out the penalty

We work out the penalty for trading without approval using a starting maximum, called the ‘maximum amount’. This is £10,000.

We’ll consider the behaviour that gave rise to the failure. For example, deliberate and concealed, and whether the disclosure was prompted or unprompted.

The standard maximum penalty is shown in the table.

Type of failure	Maximum penalty payable
Non-deliberate (any other case)	30% of £10,000
Deliberate not concealed	70% of £10,000
Deliberate and concealed	100% of £10,000

What you can do to reduce any penalties we may charge you

We can consider reducing the maximum penalty based on the quality of your disclosure. You can make a disclosure by taking any of the following 3 steps.

1. Telling us

Telling us includes:

• admitting the failure
• disclosing the failure in full
• explaining how and why the failure occurred.

2. Helping us

Helping us includes:

• giving reasonable help in establishing, for example, when trading started, who their customers are and the nature of the services they provide
• positive assistance as opposed to passive acceptance or obstruction
• volunteering any information relevant to the disclosure.

3. Giving us

Giving us includes:

• responding positively to requests for information and documents
• allowing access to business and other records
• allowing access to other relevant documents.

Prompted and unprompted disclosure

A disclosure is unprompted if a person gives information and documents to us without having a reason to believe we’ve discovered or are about to discover the failure. Otherwise, it’s a prompted disclosure.

Maximum and minimum penalties for each type of behaviour

The tables below show the maximum and minimum penalty percentages for each type of behaviour.

Non-deliberate (without reasonable excuse)	Percentage of ‘maximum amount’	Monetary value
Maximum penalty	30%	£3,000
Minimum penalty for prompted disclosure	20%	£2,000
Minimum penalty for unprompted disclosure	10%	£1,000

Deliberate but not concealed	Percentage of ‘maximum amount’	Monetary value
Maximum penalty	70%	£7,000
Minimum penalty for prompted disclosure	35%	£3,500
Minimum penalty for unprompted disclosure	20%	£2,000

Deliberate and concealed	Percentage of ‘maximum amount’	Monetary value
Maximum penalty	100%	£10,000
Minimum penalty for prompted disclosure	100%	£10,000
Minimum penalty for unprompted disclosure	30%	£3,000

When a company officer could be liable to a penalty

A company officer can be:

• a director
• a manager
• a company secretary
• any other person managing or claiming to manage any of the company’s affairs.

A company officer may be personally liable to pay all, or part of a penalty assessed against the company where:

• a company is liable to the penalty for a deliberate contravention
• the contravention is clearly linked to the actions of an officer or officers of the company.

A company officer can only be liable to a penalty in limited circumstances. For example, where they gained or attempted to gain personally from trading without approval, or is insolvent or likely to become insolvent.

Penalties for company officers who register late

As well as behavioural penalties, we can also company officers who register late with fixed penalties. The fixed penalty amount is £500 plus a further £500 for each month that they’re not registered, up to a maximum of £3,000. If we charge fixed penalties, we can still consider ‘reasonable excuse’.

Other penalties for contravening the FHDDS obligations

In addition to the penalties for trading without approval and late registration, we may also charge other penalties. We can charge these if you don’t:

• meet any condition or restriction of approval under the scheme imposed by us — this can be a £500 penalty for each contravention
• meet any of the standard obligations that apply to all FHDDS registered businesses
• notify us of non-compliant customers, where the registered business knows or has reasonable grounds to suspect that the customer isn’t meeting its UK VAT or customs duty obligations — this can be £3,000 penalty for each contravention.

Penalties for not notifying us of non-compliant customers

We can charge penalties if you:

• continue to deal with such a customer, having held the knowledge or reasonable grounds of suspicion (as above) for more than 60 days — £3,000 penalty for each contravention
• start suppling services to any customer where the registered business knows or has reasonable grounds to suspect that the customer isn’t meeting its UK VAT or customs duty obligations — £3,000 penalty for each contravention
• fail to issue specified notices to customers, informing them of their UK VAT and customs duty obligations, within the specified timescales — £500 penalty for each contravention
• fail to maintain records as required under Regulation 10 of the Fulfilment Businesses Regulations 2018 — £500 penalty for each contravention
• fail to verify customers’ VAT registration numbers, or failure to notify us of any failed validations, within the specified timescales and frequency — £500 penalty for each contravention
• fail to notify us of a change to registered details or that the registered person has stopped carrying on an imported goods fulfilment business — £500 penalty for each contravention.

Forfeiture of goods

Forfeiture means removal of goods from your business. We may do this if we find goods are being stored by a person:

• who’s carrying on an imported goods fulfilment business without FHDDS approval
• while carrying on the imported goods fulfilment business.

We won’t seize any other goods you can prove are:

• owned by the business itself
• stored on behalf of an owner who is a UK established business
• goods that haven’t been imported.

Your rights when we’re considering penalties

The European Convention on Human Rights gives you certain important rights when we consider penalties. If we’re considering penalties, we’ll tell you. We’ll also tell you that these rights apply and ask you to confirm you understand them. These rights are:

• if we ask you any questions to help us decide whether to charge you a penalty, you have the right not to answer them — the amount of help that you give us when we’re considering penalties is entirely a matter for you to decide
• when deciding whether to answer our questions, you may want to get advice from a professional adviser — particularly if you don’t already have one
• if you disagree with us about the tax or any penalties, we believe are due, you can appeal — if you appeal about both tax and penalties, you have the right to ask for both appeals to be considered together
• you have the right to apply for funded legal assistance for dealing with any appeal against certain penalties
• you’re entitled to have the matter of penalties dealt with without unreasonable delay.

For more details about these rights, go to GOV.UK and search ‘CC/FS9’.

If you disagree

If we make a decision and you can appeal against, we’ll write to you and tell you what to do if you disagree. You’ll usually have 3 options. Within 30 days, you can:

• send new information to the officer dealing with the check and ask them to take it into account
• have your case reviewed by an HMRC officer who hasn’t been involved in the matter
• arrange for an independent tribunal to hear your appeal and decide the matter.

For more information about your appeal rights, go to GOV.UK and search ‘HMRC1’ or ‘disagree with a tax decision’.

Whichever option you choose, you may also be able to ask for an HMRC specialist officer to act as a neutral facilitator to help resolve the dispute. We call this Alternative Dispute Resolution (ADR).

ADR is only available for disputes that relate to particular tax areas. The officer dealing with the check will tell you if ADR is available for your dispute. For more information about ADR, go to GOV.UK and search ‘CC/FS21, Alternative Dispute Resolution’.

More information

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to GOV.UK and search ‘HMRC Privacy Notice’.

If you’re not happy with our service

Please tell the person or office you’ve been dealing with. They’ll try to put things right. If you still aren’t happy, they’ll tell you how to make a formal complaint.