Fulfillment Businesses—Registration Deadline Day Approaches!


Third country goods fulfillment businesses must apply for approval by June 30, 2018 and comply with tough due diligence requirements—or risk fines, being put out of business, and worse!

Background

With the growth of online marketplaces, booming numbers of overseas traders sell goods in the U.K. with no physical presence here—often without registering for VAT or paying customs duty. These overseas traders typically store their goods in U.K. warehouses (referred to as “third country goods fulfillment businesses”) for onward supply to U.K. customers. The overseas traders often ignore their VAT and customs duty obligations—thereby undercutting domestic competition and costing HMRC up to a billion pounds in lost revenue, annually. 

Now, HMRC is requiring the fulfillment businesses to step in and help the government combat this abuse. 

Registration Under the Fulfillment Businesses Regulations 2018

New Fulfillment Businesses Regulations 2018 require fulfillment businesses to obtain approval to operate. As of April 1, 2019, approved businesses must notify their customers of their VAT and customs duty obligations, and notify HMRC of and cease to do business with suspected tax cheats. 

Fulfillment businesses are generally required to register if:

  • They store goods that are imported from outside the EU (from “third countries”);
  • The goods are owned by or stored on behalf of persons not established in the EU; and
  • The goods are being offered for sale, in the U.K. or elsewhere.

Registration Deadlines

Online registration opened on April 1, 2018, and applications must be made by the following deadlines for businesses to operate lawfully as of April 1, 2019: 

  • Existing fulfillment businesses—June 30, 2018;
  • Businesses that begin trading April 1 to June 30, 2018—September 30, 2018; and
  • Businesses that begin trading as of July 1, 2018—October 1, 2018 or, if later, the first trading day.

Registration Procedure

Click here for UK government guidance on how to apply for fulfillment scheme approval.

Obligations of Approved Fulfillment Businesses

Upon approval, fulfillment businesses are required to: 

  • Notify HMRC within 30 days if the business knows or has reasonable grounds to suspect that a customer has not met its U.K. VAT and customs duty obligations;
  • Cease to do business with a customer if it has known or has had reasonable ground to suspect, for a 60-day period, that the customer has failed to meet its U.K. VAT and customs duty obligations;
  • Not engage in business with a person that it knows or has reasonable grounds to suspect is not meeting a U.K. VAT or customs duty obligation; and
  •  Comply with certain due diligence and record keeping obligations, including verifying customers’ VAT registration numbers.

Penalties

Failure to register by the applicable deadline triggers a penalty of 500 pounds per violation, increased by a further 500 pounds for each month the violation continues, to a maximum of 3,000 pounds. Criminal penalties may also apply, including criminal fines and a prison term of up to seven years.

A fulfillment business that fails to comply with its obligations under the Fulfillment Businesses Regulations 2018 may also incur financial penalties of up to 3,000 pounds per violation or have its approval to operate revoked.

Further Information 

Click here for the Fulfillment Businesses Regulations 2018. 

 

By Michael Webb, Editor, and Joanna Norland, Technical Editor, Bloomberg Tax

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