What Is the Fulfilment House Due Diligence Scheme (FHDDS)?

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 scheme sets duties for eligible warehouses and fulfilment providers around customer vetting, record-keeping and cooperation with HM Revenue & Customs (HMRC) to prevent VAT loss, fraud and illicit trade involving overseas sellers who use UK storage and fulfilment services.

The FHDDS applies to businesses that meet the qualifying criteria in HMRC guidance and that store imported goods on behalf of non-UK sellers. It does not replace VAT law or import rules; instead, it creates an extra compliance layer for the physical operators — warehouses, fulfilment houses and 3PLs — that enable overseas sellers to reach UK consumers. The purpose is to make it harder for sellers to evade VAT and to give HMRC a single point of contact for investigations and information when stock stored in the UK is supplied to UK customers.

What The Scheme Typically Covers

The FHDDS focuses on how qualifying fulfilment businesses manage overseas sellers and the goods they store. Key themes are due diligence on customers, maintaining auditable records, reporting suspicious supplies, and cooperating with HMRC requests. It includes both process expectations and documentary requirements that HMRC can inspect during compliance checks and audits.

• Customer Due Diligence: Verify the identity and contact details of overseas sellers and record the basis on which the seller uses the fulfilment service.
• Record-Keeping: Maintain stock movements, consignments, invoices and proof of who supplied the goods and when they entered UK storage.
• Suspicion Reporting: Assess transactions for indicators of VAT evasion or illegal activity and inform HMRC where appropriate.
• Cooperation: Provide timely access to records and premises when HMRC conducts checks or investigations.

Why The Scheme Matters

HMRC introduced the FHDDS in response to rapid growth in online marketplaces and cross-border trade, where sellers outside the UK use domestic fulfilment to bypass tax and compliance checks. For warehouse operators, participation (or registration where required) reduces enforcement disruption by clarifying responsibilities and creating standardised processes for HMRC interaction. For the broader supply chain, it reduces the risks that illicit or non-compliant stock will be distributed through UK channels.

How Businesses Are Scoped And Identified

Not all warehouses in the UK fall under FHDDS. HMRC uses qualifying criteria tied to the nature of the storage service and the customer base. A fulfilment business typically qualifies if it stores imported goods that are placed in its control for onward sale to UK consumers by sellers established outside the UK. HMRC guidance explains thresholds and exclusions; operators that meet the test should assess whether registration is required or whether voluntary compliance measures are appropriate.

What HMRC Expects From Registered Fulfilment Houses

Registered fulfilment houses must follow the scheme rules, which are designed to be practical and proportionate but also actionable by HMRC. This includes carrying out identity checks, maintaining specified records for set retention periods, training staff to spot red flags and responding promptly to HMRC enquiries. Failure to comply can lead to removal from the scheme, penalties, and increased enforcement attention.

Practical Example

A London-based 3PL accepts pallets of consumer electronics brought into the UK by a foreign online retailer. Under the FHDDS, the 3PL should verify the seller's identity, record the consignment details and the seller’s trading details, keep SKU-level movement records in the WMS, and be prepared to provide that documentation to HMRC if a VAT compliance review is opened. If the 3PL observes improbable turnover relative to declared imports or receives inconsistent paperwork, they must escalate under their internal suspicion-reporting processes.

Tips For Warehouse Managers And 3PLs

• Integrate Records: Ensure your WMS and accounting systems capture seller identity, PO/invoice links and import paperwork so HMRC requests can be answered quickly.
• Train Staff: Standardise how intake, despatch and returns are checked for suspicious documentation or behaviour.
• Get Legal/Tax Advice: Confirm how the scheme interacts with your VAT obligations and contract terms with overseas sellers.

In short, the Fulfilment House Due Diligence Scheme (FHDDS) creates a compliance framework for UK fulfilment businesses that host imported stock from non-UK sellers: customer checks, records, suspicion reporting and cooperation with HMRC are central. Operators who store goods for foreign sellers should review HMRC guidance and implement documented processes to reduce enforcement risk and demonstrate compliance.