VAT fraud crackdown to fight counterfeit goods; non-compliant businesses risk fines

Accountancy firm MHA MacIntyre Hudson, part of the Baker Tilly International network, believes that the new HMRC Fulfilment House Due Diligence Scheme (FHDDS), launching on 1 April 2018, will crackdown on non-EU businesses which, by failing to comply with VAT regulations, are flooding the UK market with cheap, often fraudulent, online goods. This has been widely reported in the press and is having an impact throughout the EU.

Fulfilment houses, and any company providing warehousing and distribution for goods imported from a non-EU business for sale in the UK, need to register for the scheme and ensure its clients are VAT registered. Clamping down on the route to market for non-compliant overseas businesses will deter them from trading in the UK.

Fulfilment businesses already trading need to apply by 30 June 2018, and if a company starts trading after 1 April 2018, they must register by 30 September 2018. The total fine for failing to register on time can quickly stack up with a £500 charge for every non-compliant month. More importantly, from April 2019, non-compliant companies will receive a £10,000 penalty, criminal conviction and their right to trade in the UK revoked.

HMRC is taking action now, recently barring an overseas business from trading for two weeks while a VAT inaccuracy was resolved. Although the business was VAT registered, it received a notice of assessment for under-declared VAT and was given strict deadlines to provide the appropriate information. Failure to comply would see their account closed down by the fulfilment house, as HMRC would hold the fulfiller jointly and severally liable for the incorrect VAT assessment.

Alison Horner, VAT partner at MHA MacIntyre Hudson, says: “Big players such as Amazon are implementing due diligence on their overseas clients to ensure compliance with the rules. However many other businesses have yet to start the process and need to put client due diligence checks in place, gathering information and VAT numbers for all customers they trade with to enable them to demonstrate compliance. HMRC are cracking down on the issue and businesses need to be ready.

“Dubious imports may appeal to consumers on price, but they’re a huge threat to domestic businesses. While there’s a risk that the new scheme will be administratively burdensome for some small companies, our markets are saturated by non-compliant goods and the government must take steps to create a market that’s fair for UK businesses. The scheme also addresses concerns that leaving the EU will exacerbate this problem, as neighbouring regions may be tempted to use loopholes currently exploited by non-EU traders.

Jayant Rakhan, VAT partner at Baker Tilly Berk NV, says: “As a result of these new regulations, non-EU businesses may move their trade focus away from the UK to countries where the due diligence scheme is not applicable, such as the Netherlands. However this would be short lived as the VAT Digital Single Market Package, scheduled to be implemented by 2021, aims to tackle VAT fraud in cross border e-commerce trading across the EU; this will create a level playing field with the UK and will encourage non-EU businesses to become VAT compliant.’’

If you would like to speak to Alison, please contact her on 01604 624011 or email