Guidance

Penalties for breaches — Fulfilment House Due Diligence Scheme Regulations

Updated 4 March 2022

This factsheet contains information about the action that HM Revenue and Customs (HMRC) can take where there’s been a breach of the Fulfilment House Due Diligence Scheme (FHDDS) regulations.

If you need help

If you have any health or personal circumstances that may make it difficult for you to deal with us, please tell the officer that’s contacted you. We’ll help you in whatever way we can. For more details, go to www.gov.uk/get-help-hmrc-extra-support

You can also ask for someone else to deal with us on your behalf, for example, a professional adviser, friend or relative. We may however still need to talk or write to you directly about some things. If we need to write to you, we’ll send a copy to the person you’ve asked us to deal with. If we need to talk to you, they can be with you when we do, if you prefer.

About the Fulfilment House Due Diligence Scheme

FHDDS was introduced to make sure operators of fulfilment businesses (businesses carrying on a third country goods fulfilment business) take reasonable steps to make sure their customers meet their tax and customs obligations.

From 1 April 2019 any fulfilment business which has not been approved under FHDDS but continues to trade may be liable for criminal prosecution or civil penalties. Any goods being stored by such a business may be forfeited.

Background

From 1 April 2019 it’s a criminal offence to carry on a third country goods fulfilment business without approval under FHDDS. HMRC carry out checks to make sure businesses comply with FHDDS regulations.

If you give information that you know to be false, we may carry out a criminal investigation which could lead to prosecution.

You may be liable to criminal prosecution or to a penalty for trading without approval, if you:

• apply for approval but start trading, or continue to trade, after 1 April 2019 before receiving an approval decision from HMRC
• start trading and do not apply

When we can charge penalties

We can charge a penalty if you:

• do not apply for approval by the appropriate deadline or carry on a fulfilment business but are not an approved person
• breach any condition or restriction imposed as part of your approval to be registered

If you ask someone else, such as an employee or adviser, to do something on your behalf you must do as much as you can to make sure they do not breach the rules of the scheme. If you do not, you may be liable to a penalty.

When we will not charge you a penalty for an FHDDS contravention

We will not charge you a penalty if you can show that you did not know or have reasonable grounds to suspect that you were either:

• carrying on a fulfilment business
• not approved under the scheme

Trading without approval

This refers to any person carrying on a fulfilment business without being approved for registration under FHDDS. A person can be any of the following:

• an individual
• a company
• a partner
• a partnership
• a limited liability partnership

Businesses that are refused approval and continue to trade regardless of that decision are trading without approval.

How we work out the amount of a penalty

If you’ve traded without approval, we’ll work with you to find out why. We refer to this as the ‘behaviour’. The type of behaviour will affect whether we charge a penalty and the amount of the penalty. There are 3 types of behaviour:

• non-deliberate
• deliberate but not concealed
• deliberate and concealed

Where a penalty for deliberate behaviour is due to a company officer’s actions, we can transfer all or part of the liability to pay the penalty to the officer.

Non-deliberate

The non-deliberate penalty applies unless:

• the behaviour is deliberate
• the person has a reasonable excuse

Deliberate but not concealed

Trading without approval is deliberate but not concealed if the person:

• knows that they need to be registered
• fails to seek approval at the correct time
• does not take active steps to conceal the deliberate failure

An example of this is where a person has deliberately failed to keep any records of its transactions as opposed to actively concealing or destroying records.

Deliberate and concealed

Trading without approval is deliberate and concealed if the person:

• knows that they need to be registered
• fails to seek approval at the correct time
• takes active steps to conceal the fact that they need to be registered

Examples of taking active steps to conceal

These include:

• destroying or concealing records which show evidence of trading as a third country goods fulfilment business
• concealing the use of premises used to carry on a third country goods fulfilment business
• misrepresenting the nature of the business’s activities to give a false impression that they are not a third country fulfilment business

Reasonable excuse

A reasonable excuse is something that stopped you from meeting a tax obligation on time which you took reasonable care to meet. It might be due to circumstances outside your control or a combination of events. Once the reasonable excuse has ended, you must put things right without any delay.

Whether you have a reasonable excuse depends upon the circumstances of the failure to meet the obligation and your particular situation and abilities. This may mean that what is a reasonable excuse for one person may not be a reasonable excuse for someone else. If you think you have a reasonable excuse, please tell us. If we accept that you have a reasonable excuse, we will not charge you a penalty.

If there was anything about your health or personal circumstances that made it difficult for you to notify us of your liability to tax, please tell the officer that is carrying out the check. Telling them will mean that they can take this into account when considering whether you had a reasonable excuse.

Calculating the penalty

The penalty for trading without approval is calculated using a starting maximum, called the ‘maximum amount’ which is £10,000.

HMRC will consider:

• the underlying behaviour that gave rise to the failure, for example, deliberate and concealed
• whether the disclosure was unprompted or prompted

The standard maximum penalty is shown below.

Type of failure	Maximum penalty payable
Non-deliberate (any other case)	30% of £10,000
Deliberate not concealed	70% of £10,000
Deliberate and concealed	100% of £10,000

Penalty reductions for disclosure

The maximum penalty percentage can be reduced depending upon the quality of disclosure. A person makes a disclosure by:

1. Telling

Telling includes:

• admitting the failure
• disclosing the failure in full
• explaining how and why the failure occurred

2. Helping

Helping includes:

• giving reasonable help in establishing, for example, when trading started, who their customers are and the nature of the services they provide
• positive assistance as opposed to passive acceptance or obstruction
• volunteering any information relevant to the disclosure

3. Giving

Giving includes:

• a person responding positively, taking into account their abilities and circumstances, to requests for information and documents
• allowing access to business and other records
• allowing access to other relevant documents

Unprompted and prompted disclosure

A disclosure is unprompted if it’s made at a time when the person making it has no reason to believe that HMRC has discovered, or is about to discover, the failure.

Otherwise it’s a prompted disclosure.

Maximum and minimum penalties for each type of behaviour

The tables below show the maximum and minimum penalty percentages for each type of behaviour.

Non-deliberate (without reasonable excuse)	Percentage of ‘maximum amount’	Monetary value
Maximum penalty	30%	£3,000
Minimum penalty for prompted disclosure	20%	£2,000
Minimum penalty for unprompted disclosure	10%	£1,000

Deliberate but not concealed	Percentage of ‘maximum amount’	Monetary value
Maximum penalty	70%	£7,000
Minimum penalty for prompted disclosure	35%	£3,500
Minimum penalty for unprompted disclosure	20%	£2,000

Deliberate and concealed	Percentage of ‘maximum amount’	Monetary value
Maximum penalty	100%	£10,000
Minimum penalty for prompted disclosure	100%	£10,000
Minimum penalty for unprompted disclosure	30%	£3,000

When a company officer could be liable to a penalty

An officer of a company may personally be liable to pay all, or part of a penalty assessed against the company where:

• a company is liable to a penalty for a deliberate contravention
• the contravention is attributable to the actions of an officer or officers of the company

An officer can be:

• a director
• a manager
• a company secretary
• any other person managing or claiming to manage any of the company’s affairs

The use of this provision is limited to circumstances where:

• the company officer gained or attempted to gain personally from trading without approval
• the company is insolvent or likely to become insolvent

Penalties for late registration

The amount of penalty that can be charged is £500 plus a further £500 for each month the failure to apply for registration continues, up to a maximum of £3,000.

The amount of a penalty for late registration will not be affected by the behaviour (deliberate, concealed and so on) that gave rise to the late registration. However, the amount will be subject to the standard considerations of whether there’s a reasonable excuse.

Penalties for breaches of FHDDS obligations

In addition to the penalty for late registration, penalties may also be applied for the following breaches:

• failure to meet any condition or restriction imposed by HMRC as a condition of approval under the scheme — £500 penalty for each contravention
• failure to meet any of the standard obligations that apply to all FHDDS registered businesses
• failing to notify HMRC of non-compliant customers, where the registered business knows or has reasonable grounds to suspect that the customer is not meeting its UK VAT or customs duty obligations — £3,000 penalty for each contravention
• continuing to deal with such a customer, having held the knowledge or reasonable grounds of suspicion (as above) for more than 60 days — £3,000 penalty for each contravention
• commencing to supply services to any customer where the registered business knows or has reasonable grounds to suspect that the customer is not meeting its UK VAT or customs duty obligations — £3,000 penalty for each contravention
• failing to issue specified notices to customers, informing them of their UK VAT and customs duty obligations, within the specified timescales — £500 penalty for each contravention
• failing to maintain records as required under Regulation 10 of the Fulfilment Businesses Regulations 2018 — £500 penalty for each contravention
• failing to verify customers’ VAT registration numbers, or failure to notify HMRC of any failed validations, within the specified timescales and frequency — £500 penalty for each contravention
• failing to notify HMRC of a change to registered details or that the registered person has ceased to carry on a third country goods fulfilment business — £500 penalty for each contravention

Forfeiture of goods

Goods are liable to forfeiture in the following circumstances:

• goods are being stored by a person who’s carrying on a third country goods fulfilment business without being registered for FHDDS
• said goods are being stored by the person in the course of carrying on that third country goods fulfilment business

We will not seize any other goods such as, for example, goods that can be shown to be:

• owned by the business itself
• goods being stored on behalf of an owner who is a UK established business
• goods that have not been imported from a third country

Your rights when HMRC are considering penalties

The European Convention on Human Rights gives you certain important rights when HMRC consider penalties. If we’re considering penalties, we’ll tell you. We’ll also tell you that these rights apply and ask you to confirm that you understand them. These rights are that:

• if we ask you any questions to help us decide whether to charge you a penalty, you have the right not to answer them — the amount of help that you give us when we’re considering penalties is entirely a matter for you to decide
• when deciding whether to answer our questions, you may want to get advice from a professional adviser — particularly if you do not already have one
• if you disagree with us about the tax or any penalties, we believe are due, you can appeal — if you appeal about both tax and penalties, you have the right to ask for both appeals to be considered together
• you have the right to apply for funded legal assistance for dealing with any appeal against certain penalties
• you’re entitled to have the matter of penalties dealt with without unreasonable delay

You can find full details about these rights in factsheet CC/FS9 ‘The Human Rights Act and penalties’. Go to www.gov.uk and search ‘CC/FS9’.

How we tell you about a penalty

We’ll write to you to tell you how much the penalty is and how we’ve worked it out. If there’s anything about the penalty that you do not agree with, or if you think there’s any information we have not already taken into account, you should tell us straightaway.

After taking account of anything you have told us, we’ll then either:

• send you a penalty assessment notice
• invite you to enter into a contract with us to pay the penalty

If you disagree

If there’s something that you do not agree with, please tell us.

If we make a decision that you can appeal against, we’ll write to you about the decision and tell you what to do if you disagree. You’ll usually have 3 options. Within 30 days, you can:

• send new information to the officer dealing with the check and ask them to take it into account
• have your case reviewed by an HMRC officer who has not been involved in the matter
• arrange for an independent tribunal to hear your appeal and decide the matter

Whichever you choose, you may also be able to ask for an HMRC specialist officer to act as a neutral facilitator to help resolve the dispute. We call this Alternative Dispute Resolution (ADR).

ADR is only available for disputes that relate to particular tax areas. The officer dealing with the check will tell you if ADR is available for your dispute. For more information about appeals and ADR, read factsheets:

• HMRC1, ‘HM Revenue and Customs decisions — what to do if you disagree’
• CC/FS21, Alternative Dispute Resolution

Go to www.gov.uk and search for ‘HMRC1’ or ‘CC/FS21’.

Our privacy notice

Our privacy notice sets out the standards that you can expect from us when we ask for information or hold information about you. Go to www.gov.uk and search for ‘HMRC Privacy Notice’.