Policy paper

The Fulfilment Businesses Regulations 2018

Published 8 March 2018

1. Who is likely to be affected

Fulfilment and storage businesses that handle imported goods on behalf of third parties located outside the European Union.

2. General description of the measure

The Fulfilment Business Regulations 2018 (‘the Regulations’) introduce the administrative procedures and details for the Fulfilment House Due Diligence Scheme.

3. Policy objective

The objective of the statutory instrument is to set out the application process (including deadlines), obligations applicable to approved businesses and penalties for non-compliance for the scheme.

4. 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.

A Tax Information and Impact Note covering the primary legislation was published on 5 December 2016 alongside draft provisions for the Finance Bill 2017.

The Fulfilment House Due Diligence Scheme guidance provides detail about the scheme.

5. Detailed proposal

5.1 Operative date

From 1 April 2018 fulfilment businesses will be able to submit applications to HMRC for approval.

On 1 April 2019, the prohibition on carrying on a fulfilment business without an approval will come into force, as will the related provisions - dealing with criminal offences, forfeiture and penalties - when the prohibition is breached.

Also on 1 April 2019, the obligations imposed on approved fulfilment businesses will come into force, as will the penalty provisions relating to a contravention of those obligations.

5.2 Current law

Part 3 of the Finance (No 2) Act 2017 sets out the primary legislation for this measure. It introduces the key elements of the Fulfilment House Due Diligence Scheme, which are:

• the prohibition from carrying on a third country goods fulfilment business unless the person holds an approval from HMRC
• sanctions relating to non-compliance, including offences, power of forfeiture and penalties
• rights of review and appeal in relation to HMRC’s decisions

It also allows for regulations to be made in relation to:

• the approval and registration process
• any conditions and restrictions to which approval or registration are subject
• obligations to be imposed on approved persons
• penalties for not complying with the regulations

Except for powers to make regulations, part 3 of the Finance (No. 2) Act 2017 does not come into force until such a day is appointed by regulations.

5.3 Proposed revisions

The Regulations, made under powers already in force, introduce the administrative procedures and details for the Fulfilment House Due Diligence Scheme.

They have been subject to a technical consultation with stakeholders between 23 October 2017 and 15 December 2017, following publication of the primary legislation. A brief summary of responses will be published on GOV.UK.

The Regulations set out: how applications, and other communications with HMRC, should be made (part 1); the application process, including deadlines for making an application for approval (part 2); obligations imposed on approved fulfilment businesses, including keeping certain records and carrying out due diligence checks (part 3) and penalties (part 4).

Parts 1 and 2 of the Regulations come into force on 1 April 2018 as does part 4, to the limited extent that it deals with penalties for late applications. Part 3, and the rest of part 4, come into force on 1 April 2019. Part 5 comes into force on 9 March 2018.

The Finance (No. 2) Act 2017, Part 3 (Appointed Days) Regulations 2018 will appoint the days on which part 3 of the Finance (No. 2) Act 2017 comes into force. These will be:

• 1 April 2018, to facilitate reviews and appeal of decisions taken under the Fulfilment Businesses Regulations
• 1 April 2019 for all other purposes

5.4 Summary of impacts

The tax information and impact note published on 5 December 2016 remains an accurate summary of the impacts that apply to the package of legislation included in part 3 Finance (No. 2) Act 2017 and this statutory instrument. There are no new impacts that have been identified.

5.5 Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
+65	+130	+230	+250	+265	+235

These figures are set out in Table 2.2 of Autumn Budget 2017 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.

5.6 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.

5.7 Impact on individuals, households and families

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

5.8 Equalities impacts

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

5.9 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.

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

5.10 Operational impact (HMRC or other)

There will be ongoing resource costs for HMRC to implement this change and monitor compliance.

5.11 Other impacts

Justice Impact Test: there may be a minor impact on the Tribunal Service. A Justice Impact Test has been 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.

5.12 Monitoring and evaluation

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

5.13 Further advice

If you have any questions about this change, please contact Roopal Pujara on Telephone: 03000 586462 or email Roopal Pujara or the project team.

5.14 Declaration

Mel Stride MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.