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HMRC internal manual

Excise Due Diligence Condition guidance

The due diligence condition: due diligence checks

Although the notices referred to in EDDC02010 provide businesses with detailed examples of risks and associated due diligence checks, our policy is not to provide a definitive list. This is because a definitive list could either place an unnecessary burden (when checks are not required) or be ineffective (when different checks are needed). Also, less honest businesses could adapt their operations to provide convincing records or arrangements to superficially meet the requirements of a set list, without there being any genuine substance to the checks undertaken. You should challenge instances where a generic “check-list” approach is being carried out.

Registered businesses should decide on and carry out a range of ‘FITTED’ due diligence checks, before agreeing to trade with another business, re-evaluating risks and conducting appropriate checks whilst trade continues. ‘FITTED’ is an acronym for the following risk areas:

  • F =Financial Health
  • I =Identity
  • T=Terms of contract
  • T=Transport
  • E=Existence of goods
  • D=Deal

Their ‘FITTED’ checks should consider the:

  • Financial health of the business they will trade with, such as, by obtaining credit or other background checks
  • Identity of the business they will trade with, such as, by obtaining letters of introduction, establishing the general visibility of the business and confirmation of Companies House and HMRC approval details
  • Terms of any contracts, payment and credit agreements
  • Transport, including the transporter and where the goods are being moved to or from
  • Existence and provenance of goods, such as, their correct duty status or whether they are counterfeit or stolen
  • the Deal, including:

 

  • why is it being offered
  • is it too good to be true
  • the real demand for the goods, such as UK goods supplied to countries with no real appetite for them
  • goods, such as UK produced ones, sourced from foreign, contrived or convoluted supply routes

A business’s excise due diligence risk assessment and checks should be a continuous process proportionate to the size and type of its trading activity. It should not be a one-off exercise at the start of a contract.