Fulfilment House Due Diligence Scheme (FHDDS) Guide | Pulse

In short: The Fulfilment House Due Diligence Scheme (FHDDS) is an HMRC approval scheme for UK businesses that store imported goods on behalf of sellers established outside the UK, where those goods are offered for sale and have not yet been sold in the UK. If your limited company does this, it must be approved by HMRC before it starts trading, and trading without approval is a criminal offence. Once approved, you must keep specific records, check your overseas customers' VAT details, give them a formal notice of their UK obligations and report customers you suspect are not complying. For most 3PLs the harder part is not the application but building these checks into onboarding and warehouse systems so they happen every time.

What is the Fulfilment House Due Diligence Scheme?

FHDDS was introduced to tackle VAT and customs duty losses from overseas sellers who ship stock into UK warehouses and sell it to UK customers, often through online marketplaces, without accounting for the tax due. Rather than chase those sellers directly, HMRC placed obligations on the UK businesses holding their goods. A fulfilment house that stores stock for an overseas seller is expected to know who that seller is, check that they are properly registered, and act if they are not.

The scheme applies based on what you do, not what you call yourself. A third party logistics provider, a pick and pack operation, a contract warehouse or a freight business with storage can all fall within it. That is why fulfilment house registration comes up early for anyone setting up or expanding a 3PL, and why it is one of the compliance areas specialist accountants for third party logistics companies review when taking on a new client. For background on where fulfilment sits within the wider model, see our guide to what third party logistics is.

Who needs to register as a fulfilment house with HMRC?

HMRC's test looks at the goods rather than the business. You need to apply if your business stores any goods that meet all three of these conditions:

• they were imported from a country outside the UK
• they are owned by, or stored on behalf of, someone established outside the UK
• they are being offered for sale and have not been sold in the UK before

The scheme also applies where goods are released into free circulation after being held under a customs regime, if you continue to store them and they are still offered for sale. It applies even if you do not think of yourself as a fulfilment business, and even if you already carry out due diligence on customers under another HMRC scheme. Storing qualifying goods for a single overseas customer is enough to bring you within it.

What does established outside the UK mean?

This is where many operators get caught out. HMRC looks at where a business's central administration takes place: where essential management decisions are made, where the registered office is located and where management meetings happen. A permanent physical presence in the UK, with the people and technical resources to make or receive supplies here, also creates a UK establishment. A UK trading address or a UK marketplace storefront does not, on its own, make a seller UK established, so customers that look domestic on paper can still need a closer look.

Which businesses are outside the scheme?

You should not apply if you only store goods that you own yourself, or if your main business is transport and you store goods only temporarily, such as overnight, as part of moving them. Storing goods in Northern Ireland solely for sellers established in the EU and Great Britain is also outside the scheme. These exclusions are narrow. A haulier that begins offering longer term storage to an overseas client, or a brand that starts holding stock for an overseas partner, can move into scope without changing much about its day to day operation.

When must you apply for FHDDS approval?

Before you start trading. It is a criminal offence to carry on a qualifying fulfilment business before HMRC has approved your application, and separate penalties apply to applications made late. For a new 3PL, this means FHDDS belongs in the start up timeline alongside VAT registration and insurance, not after the first overseas client signs. Our guide on how to start a logistics company covers the other steps. For an established warehouse, the trigger is usually commercial: a conversation with an overseas brand that would be the first customer to bring you into scope. HMRC's guidance on applying for the Fulfilment House Due Diligence Scheme sets out the current requirements.

The application is made online by the business itself. HMRC does not allow an agent to submit it on your behalf, although your accountant can help you prepare the information and make sure the answers are consistent with your other HMRC records.

What does HMRC look at during fulfilment house registration?

For a limited company, HMRC matches the application to the company's tax records and asks for details of its directors and company secretary, the number of overseas customers it stores goods for, every UK premises used to store imported goods (including any operated by third parties), its trading history at current and previous addresses, its VAT registration and its EORI number. It then carries out checks on the business and the people involved, which in most cases includes a pre approval visit. Officers use that visit to test whether the business is genuine and commercially credible, how it is structured and financed, and whether the people behind it are fit and proper. Inconsistent answers, weak records and unclear ownership are the usual causes of delay.

What are your ongoing obligations once you are approved?

Approval brings a unique reference number and a place on HMRC's published list of registered fulfilment businesses. It also brings a set of continuing duties, and HMRC can charge penalties for each failure. HMRC's guidance on checks and records for approved businesses sets these out in full.

Keeping the right records

For each overseas customer, you must record their name and contact details and their VAT registration or VAT exemption number. You must also record the type and quantity of goods stored, the import entry references for those goods as they appear in the Customs Declaration Service, the country the goods are sent to when they leave storage and the notices you have given the customer. These records must be kept for a number of years, and gaps can be treated as separate breaches.

Checking customers and giving notice

Each overseas customer's VAT registration number or VAT exemption number must be verified with HMRC. Each customer must also receive HMRC's prescribed notice explaining their UK tax and duty obligations, within a short window after you are approved, after you start working with them, or after HMRC updates the notice.

Acting when a customer is not compliant

If you know or have reasonable grounds to suspect that a customer is not meeting its VAT or customs duty obligations, you must tell HMRC within a fixed period. If the customer still does not put things right, you must stop trading with them, and you must not take on a customer you already suspect is non compliant. You are also expected to work with customers to help them meet their obligations. In practice this is the duty that creates the most commercial tension, because it can mean turning away revenue or exiting an existing account.

Keeping HMRC updated

Changes to your registered details, including the appointment of a new director, must be reported, as must a decision to stop trading as a fulfilment business.

How should a 3PL build FHDDS into its operations?

The operators who manage the scheme well treat it as a process rather than a form. The checks sit in client onboarding, so no overseas account goes live without a verified VAT number, a delivered notice and a clear record of where the customer is established. The data sits in the warehouse management system, so goods can be traced to an import entry reference and a destination without anyone rebuilding the picture from spreadsheets during an HMRC visit. And there is a routine for rechecking customers, noticing warning signs such as a seller reluctant to register for VAT, and escalating concerns before the reporting deadline passes.

This is Stage 1 of our 5 Stage Success Journey, Compliance and Foundations, but it leans heavily on Stage 2, Tech Advisory. Connecting onboarding, WMS data and your accounting system means the evidence exists as a by product of normal work rather than an extra job. Our tech advisory team helps logistics businesses set up those connections, and we look at the systems side in more detail in our guide to accounting software for logistics companies.

There is a commercial side too. HMRC publishes the list of registered fulfilment businesses so that overseas sellers can check who they are dealing with, and many will not contract with a warehouse that is not on it. Approval, backed by a visibly well run due diligence process, is part of how a 3PL wins international clients. Contract terms should reflect this, setting out what information the customer must provide, how often, and what happens if they fall out of compliance.

What happens to FHDDS approval when a fulfilment business is sold?

Approval belongs to the approved person, not to the warehouse. If a fulfilment business changes hands completely, the existing approval does not pass to the new owner. The buyer must tell HMRC about the change well ahead of the date it intends to trade and apply for its own approval, and it cannot trade as a fulfilment business until that approval is granted. Changes short of a complete change of ownership, such as appointing a new director, do not need a fresh approval but still have to be reported.

That has real consequences for deal timetables. A buyer that completes without a plan for approval can find itself unable to serve the overseas customers it has just paid for. For owners, it means FHDDS records and approval history form part of a buyer's due diligence, and something worth preparing as part of exit planning long before a buyer asks. Group restructures that move a fulfilment trade into a different company can raise the same issue, so they need planning with the scheme in mind.

How does FHDDS relate to VAT and customs?

FHDDS does not change who is liable for VAT on the sale of the goods. It is a due diligence regime layered on top of the existing VAT and customs rules, designed to make sure overseas sellers meet obligations that already apply to them. Your own VAT position is a separate question. The services you supply to overseas clients, the import arrangements you are involved in and the evidence you hold all carry their own rules, which we cover in our guide to VAT for warehousing, fulfilment and logistics businesses. Our VAT team can review both together, so that what you tell HMRC under the scheme is consistent with your VAT returns and customs records.

That consistency is why FHDDS sits more comfortably inside an ongoing accounting relationship than as a one off registration. For a limited company holding stock for international sellers, the scheme, the VAT position and the management information all draw on the same underlying data.

Frequently asked questions

What is the Fulfilment House Due Diligence Scheme?

The Fulfilment House Due Diligence Scheme (FHDDS) is an HMRC scheme that requires UK businesses storing imported goods for sellers established outside the UK to be approved before trading, keep records, check their overseas customers' VAT details and report suspected non compliance. It is designed to reduce VAT and customs duty losses on goods sold in the UK by overseas sellers.

Do I need to register for FHDDS if I store goods for overseas sellers?

You need to apply if you store goods that were imported from outside the UK, are owned by or held for someone established outside the UK, and are offered for sale without having been sold in the UK before. Businesses that only store their own goods, and transport businesses storing goods temporarily as part of moving them, should not apply.

Can I trade while my FHDDS application is being processed?

No. It is a criminal offence to trade as a qualifying fulfilment business before HMRC has approved your application, so the application needs to be made well before you take on your first overseas customer.

Can my accountant apply for FHDDS on my behalf?

No. HMRC requires the business to submit the application itself through its online service. An accountant can help you prepare the information, check it against your other HMRC records and set up the processes you will need once approved.

How can an overseas seller check that a fulfilment house is registered?

HMRC publishes a list of businesses registered under the Fulfilment House Due Diligence Scheme on GOV.UK. Overseas sellers can use it to confirm that the UK business storing their goods is approved.

Does FHDDS approval transfer when a fulfilment business is sold?

No. Where there is a complete change of ownership, the existing approval does not pass to the new owner. The buyer must tell HMRC in advance and obtain its own approval before trading as a fulfilment business.

How can Pulse help with FHDDS?

We work with warehousing, fulfilment and 3PL businesses across the UK from our offices in the North East and London. Whether you are preparing a first application, taking on your first overseas client or buying an existing fulfilment business, our 3PL accounting and tax team can confirm whether you are in scope, help you prepare what HMRC will ask for and build due diligence into your onboarding and reporting. London operators can read more in our guide for 3PL accountants in London, or you can book a conversation with our team.