William Martin, co-founder and Finance Director of Littledart Fulfilment, broadly welcomes the regulation his business operates under. But he does have some issues with one aspect of it.
The Fulfilment House Due Diligence Scheme was introduced in 2018. Designed to tackle non-compliance and tax evasion by third-country businesses importing goods into the UK, it requires fulfilment companies in the UK who work with third-country businesses to register with HMRC, keep records and carry out due diligence checks on overseas customers.
One of the biggest issues with this is that the regulation was announced at Budget 2016 before Brexit negotiations had even started. Now all of Europe counts as a ‘third country’ and the updating of the language of the regulation to reflect the post-Brexit import/export landscape has been a slow and arduous process, Martin explains: “For example, up until the update published on 6 December 2022, the regulation required a customs number that didn’t exist anymore.”
The Fulfilment House Due Diligence Scheme puts the onus on fulfilment companies to police the behaviour of third-country businesses importing into the UK, something that Martin supports. But, he says: “What I find issue with is, once you do have to use the regulation, communication is very poor from HMRC.”
With HMRC seemingly adopting a hands-off approach to the scheme, it’s not surprising that some businesses are taking a more lax approach to following the rules. Occasionally companies that Littledart has turned away due to non-compliance have ended up working with other fulfilment centres.
“If you're going to regulate, you need to police,” says Martin. “There's no point in regulation without either a carrot or a stick. In this case, there's very little carrot to it because the registration process under the current scheme is very simple, so you can’t use it as a gold standard brand for a competitive edge. But also, the stick is slow and not very effective.”
Since the UK left the EU, there’s also been a large influx of enquiries from Europe, increasing the amount of work relating to the Fulfilment House Due Diligence Scheme. It needs greater policing, says Martin. Without this, the scheme effectively allows bad practice to continue which is harming the industry as a whole.
“I am a fan of regulation of good ethical business,” says Martin. “The objective is clear. It's basically the government saying that companies are in this unique position to be a check and balance on third-country companies. But the penalties are relatively small for non-compliance; they’re nothing on the scale Amazon had to pay.”
There is little support and communication from HMRC on processes and the system itself, says Martin. This, combined with the lack of resources, suggests that despite being a vital area of defence against VAT evasion, “It has general industry support, but it feels like it is not a focus area for HMRC.”
When it comes to regulators listening to small business concerns, Martin feels that there are not many outlets for companies to have their voices heard. “To sit on the council of a trade body, you’ve usually got to be quite big, so that you’ve got the time to dedicate to it. For the newer, smaller companies in the group, they don’t really have the time.”
Likewise, if the government thinks about regulation, they will reach out to major players within the affected sector, but what it hears will not necessarily be representative of the wider sector. Says Martin: “Their problems are totally different from my problems.”
In Martin’s opinion, an ideal world would feature regulations with a clear purpose, clearly communicated and effectively policed. Currently there is a disconnect between how the legislation is written, how it is rolled out and how businesses read it: “I think the burden on fulfilment houses is absolutely right. But if you’re going to put a burden on small businesses, you’ve got to at least police it, communicate it and update it in line with the real world.”
Better Regulation project
The Better Regulation project aims to help ICAEW and its members understand how the UK’s regulatory regime might be improved and to use our insights to call for change.
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