FHDDS vs VAT Registration: Who Is Liable And When Each Applies

Fulfilment House Due Diligence Scheme (FHDDS) A UK scheme regulating qualifying fulfilment businesses that store imported goods in the UK for sellers established outside the UK. The relationship between FHDDS obligations and VAT registration is commonly misunderstood: FHDDS targets fulfilment operators' due diligence responsibilities, while VAT registration and liability rest on taxable persons making supplies in the UK.

Distinguishing the two is essential for warehouses, overseas sellers and marketplaces. FHDDS does not make a fulfilment house the VAT payer by default; it imposes governance duties on the storage and fulfilment provider. VAT registration and the VAT chargeable on a supply depend on where the supply is made, who makes it and whether the seller or intermediary meets VAT registration thresholds or other VAT rules.

Primary Differences Between FHDDS And VAT Registration

The two regimes serve different policy goals and apply to different actors. FHDDS is an HMRC scheme to secure information and cooperation from physical operators. VAT registration is a tax-status requirement that applies to businesses making taxable supplies in the UK once thresholds or rules dictate registration.

• Scope: FHDDS applies to qualifying fulfilment businesses; VAT registration applies to suppliers making taxable supplies in the UK.
• Purpose: FHDDS is about due diligence and preventing VAT loss; VAT registration determines who accounts for VAT and collects it from customers.
• Consequences: Non-compliance with FHDDS can lead to penalties and revocation from the scheme; failing to register for VAT when required leads to tax liabilities, interest and penalties.

When Overseas Sellers Need UK VAT Registration

An overseas seller storing goods in the UK for sale to UK consumers will often create a UK taxable presence that triggers VAT obligations. The practical triggers include making taxable supplies in the UK, exceeding distance‑selling thresholds (where applicable) or using UK storage to fulfil UK sales. Marketplaces and fulfilment operators should confirm which party is treated as making the supply under current VAT rules, because that affects who must register.

• Using UK Storage: Storing goods in the UK may be treated as making a supply in the UK, creating an obligation for the seller to register for VAT.
• Place Of Supply Rules: VAT depends on place-of-supply rules and can be influenced by whether an intermediary is treated as the supplier.

Who Pays Import VAT And How Postponed VAT Accounting Fits

Import VAT is due when goods enter the UK. Since 2021 many traders may use postponed VAT accounting to record import VAT on their VAT return rather than paying at the border. The mechanics of import VAT and whether the fulfilment house assumes any role depend on contractual arrangements. Operators should make clear in contracts whether they will handle import declarations and how associated VAT is recovered.

• Import VAT Liability: The importer of record is responsible for import VAT unless arrangements like postponed accounting apply and the importer is VAT registered.
• Fulfilment House Role: Fulfilment houses typically do not become the importer of record unless contractually agreed; their FHDDS duties are separate from import obligations.

Practical Scenarios And Who Bears Which Responsibility

Scenario 1 — Overseas seller uses a UK fulfilment house but remains the named supplier: The seller is likely responsible for VAT registration and accounting. The fulfilment house must comply with FHDDS checks but is not the VAT payer by default.

Scenario 2 — Marketplace or fulfilment provider is treated as the supplier under marketplace rules: The intermediary may have VAT obligations to register and account for supplies; FHDDS obligations for the operator still apply.

Scenario 3 — Importer of record is the fulfilment operator (contracted to act as importer): The operator assumes import VAT handling duties and should ensure registration and accounting processes are in place. FHDDS compliance remains necessary if the operator qualifies.

Coordination And Contractual Controls

To reduce ambiguity and compliance risk, warehouses and sellers should set clear contractual terms covering who is the importer of record, who accounts for VAT at sale, and what records each party will keep for FHDDS and HMRC audits. Define responsibilities for returns, destroyed goods and discrepancies so that both VAT and FHDDS obligations are met.

• Contract Clauses: Specify importer status, VAT responsibilities, record-sharing requirements and indemnities.
• Operational Sync: Align the WMS and accounting systems so VAT transactions map to physical stock and seller identities.

In short, the Fulfilment House Due Diligence Scheme (FHDDS) is a compliance scheme for fulfilment operators, while VAT registration concerns who makes taxable supplies and who accounts for VAT. The two can intersect depending on storage, importer status and marketplace arrangements — clear contracts, integrated records and professional tax advice are the practical steps to avoid gaps and unexpected liabilities.