Why the Fulfilment House Due Diligence Scheme Matters to Ecommerce Brands

The Fulfilment House Due Diligence Scheme (FHDDS) is a UK legal framework designed to tackle VAT fraud. Businesses have to register for the scheme if they store goods that are: 

• Imported into the UK
• Owned by or stored on the behalf of people not based in the UK
• Going to be sold in the UK 

Fulfilment centres – or third-party logistics (3PL) hubs – can only work with customers that are registered for UK VAT. They are legally required to check a potential customer’s VAT number. That means you can’t use a 3PL or Amazon FBA warehouse in the UK unless you’re registered for VAT. 

How does the Fulfilment House Due Diligence Scheme Work? 

When a 3PL in the UK wants to work with international customers with imported goods, they register for FHDDS. The scheme doesn’t apply to companies whose main work is transport, as storing goods in these cases is usually temporary. 

HMRC will check their application against their records, and then investigate the key people in the business to make sure: 

• They’ve not been involved in or connected to significant revenue non-compliance or fraud
• Any relevant criminal convictions have been spent
• They’ve complied with HMRC (the UK Tax Authority) requirements 

Once registered for the Fulfilment House Due Diligence Scheme, a 3PL has compliance and record keeping obligations. They need to keep records of: 

• The names and contact details of international customers
• The VAT registration and VAT exemption numbers of international customers
• The type and quantities of goods stored in their warehouse
• Import entry numbers or Movement Reference Numbers (MRN)
• The delivery addresses
• Notices that they’ve given to international customers that explain their VAT and duty obligations in the UK 

They have to keep these records for 6 years and will be fined £500 for every failure to comply. 

Once registered for the Fulfilment House Due Diligence scheme, 3PLs have to check their customers details. You’ll need to provide them with your UK VAT or VAT exemption number, which they’ll validate with HMRC. Within 30 days of the start of working with your UK 3PL, you’ll get a “Notice of UK Obligations”. This is an official letter that outlines:  

• VAT and customs duty rules in the UK (your liability)
• What information the 3PL is required to collect from you
• When FHDDS registered businesses are required to notify HMRC non-compliance
• When the 3PL has to cease trading with non-compliance businesses

Why the Fulfilment House Due Diligence Scheme Matters to non-UK Ecommerce Businesses

Put simply: you cannot use a 3PL or Amazon FBA warehouse in the UK without being registered for UK VAT. Fulfilment centres won’t work with you otherwise because of the risk. Fines range from £500 to £3000 for not checking numbers or not giving notice. Ultimately, they can lose their licence for working with businesses that aren’t VAT compliant. 

The risk isn’t limited to the fulfilment company. For your business, the risk would be: 

• 3PLs refusing your goods massively disrupt your supply chain
• Your inventory can be removed from storage and in some cases, destroyed
• If you sell through Amazon FBA, you’ll lose access to the program and may even have your account suspended
• Finally, non-compliance will cause HMRC to investigate your business, which will likely end in fines and penalties 

This is made easier for HMRC as FHDDS-registered companies have to notify them if they think you’re not meeting your VAT obligations. However, they are obliged to help you with VAT compliance and can be fined £3000 for failing to do so. They usually do this by referring you to a partner like SimplyVAT - we can help you get registered for UK VAT and the ongoing VAT returns.

Fulfilment House Due Diligence Scheme FAQs for Ecommerce Sellers 

I’m not based in the UK. Why do I need a VAT registration?

By law, fulfilment houses must check your VAT status so you have to register for UK VAT if you want to use one in the UK. If you don't register, Amazon will prevent you from using the FBA program. Intentional non-compliance may even lead Amazon to suspend your account. 

Can I avoid UK VAT by storing my inventory somewhere else? 

Non-UK sellers can’t avoid UK VAT if they want to sell to UK customers. You could store your inventory in another European county, but you’ll likely have to register there instead. There’s also no registration threshold for non-UK businesses selling to UK customers.  

Holding your stock elsewhere also means you’ll miss out on: 

• Competitive shipping rates
• Fast UK delivery
• Access to Amazon FBA in the UK 

Ultimately, you will end up dealing with VAT in some capacity. The trick is working out the most efficient way to handle it, which is made easier with advice from an expert, like the VAT consultants at SimplyVAT.  

Can I register later, once my business has grown? 

Because of the Fulfilment House Due Diligence scheme, 3PLs and fulfilment centres won’t onboard you until after you’re registered. If you want to use one in the UK, you will have to be registered. Depending on the incoterms you use to ship to UK customers, you may have to register for VAT anyway.