Fulfilment Houses Come Under More Scrutiny From HMRC

Terri Bruce

April 4th, 2024

The key changes

The administration and control requirements of a fulfilment house can be arduous and failure to comply can be costly. Below is an extract from a letter that was sent to a fulfilment house because no one was available to assist HMRC at the time of their unannounced visit:

“I would like to remind you that had you been available when I visited your company, then the issue of penalties would have been the immediate result of any failure on your part to meet your obligations under the Fulfilment Businesses Regulations.”

Moving from a fulfilment house to a customs warehouse can remove the need to comply with the outdated Fulfilment House Due Diligence Scheme and can provide similar benefits.

There are many misconceptions about customs warehouses. For example, it is not necessary to store duty-free and duty-paid goods separately. The warehouse does not have to be large. Indeed, one of our clients has authorisation for a customs warehouse for their offices where they pick and pack. This enables them to fulfil sales orders to the US without paying duty on goods imported into the UK for re-export.

Dains has created a one-stop-shop solution which we believe may be an alternative to a Fulfilment house and which will reduce the risk of HMRC challenge.

Take Action Now

To learn more about the services which Dains can provide please contact the Dains Customs and VAT team or simply complete our enquiry form.

Caution is required

The changes to reporting and auditing requirements will at first sound compelling to many directors and partners. But with the opportunity to perhaps cut costs, comes danger.

The new regulations bring new responsibilities and complexities; meanwhile the advantages of an audit remain undiminished. Any decision to take advantage of an audit exemption needs to be taken with care. Before making the decision directors and partners should think about the following:

Does your memorandum and articles of association or partnership agreement require an audit?
Are you regulated by a professional body that requires an audit?
Do your bank loans or overdraft include finance covenants requiring an audit?
How will suppliers and customers react to non audited accounts?
How will business owners gain comfort that they are not being defrauded by management?
What will be the impact on credit ratings?
What will be the impact on the value of the company or LLP if you want to sell the business?
Where a subsidiary does not prepare audited financial statements, its parent must guarantee its “liabilities” and must file that guarantee at Companies House. The parent also needs to file consolidated accounts at Companies House. Note “liabilities” has not been defined and so is open to interpretation by the courts.

What are the new audit thresholds?

The new thresholds, applicable for accounting periods ending on or after 1 October 2012, are as follows.
A company or LLP will require a mandatory audit if it meets two out of the following three thresholds:

Turnover of £6.5 million
Gross assets of £3.26 million
50 employees

Companies within a group will require a mandatory audit if the size of the group meets two out of the following three thresholds:

Aggregate turnover of £6.5 million net or £7.8 million gross
Aggregate gross assets of £3.26 million net or £3.9 million gross
Aggregate number of employees of 50

Conclusion and next steps

Small and medium sized businesses should remain focused on strong financial controls and management oversight.

Audit and assurance and independent verification is important in instilling confidence in a business’s financial position. As a result many businesses will still benefit and may still choose to have audits.

Directors, partners and business owners should consider very carefully whether an audit is required or desirable for their business.
Magma’s audit and assurance team can advise directors, partners and business owners on their options and provide guidance.