FITTED Due Diligence For Alcohol Wholesalers – What Is FITTED Does Yours Pass The Test?
HMRC due diligence requirements are known by the name FITTED. They are also referred to as “the due diligence condition”. HMRC Excise Industry FITTED was introduced to the duty suspended Excise industry in Nov 2014 (WOWGR), and is set out in HMRC’s Excise Notice 196 at Section 10.
FITTED also applies to duty paid traders as part of AWRS (Alcohol Wholesalers Registration Scheme). This is set out in HMRC Excise Notice 2002 at section 12. Enhanced Due diligence checks are here to stay and are Tax Tribunal approved.
Many companies in the Alcohol wholesale industry are now coming to terms with HMRC’s FITTED Due diligence condition as part of the Alcohol Wholesalers Registration Scheme (AWRS). For those that are unfamiliar, read HMRC Public Notice 2002 to bring yourself up to speed. Altion Law undertakes a number of these checks on behalf of clients and we have seen the quality of due diligence checks improve over the last 2 years. The Due Diligence condition is split into 3 parts, the identity of the trading entity, the Risk Assessment and the Continuous Monitoring of this entity and the trading relationship.
- There is no defined list of checks that must be carried out but the checks must reflect the risks posed by the trading relationship. Many of the larger companies within the Excise and Drinks industry now have either departments or individuals tasked to deal with these queries.
- If a company has a Bond account or has a direct supplier account with a producer doesn’t mean FITTED can be ignored. Each company sets its own due diligence and risk assessments to a level of risk that it is willing to take. This is a commercial decision made by that company and the directors will be held accountable to HMRC if the company is found to not be ‘assisting in the administration, collection and protection of the revenue’.
- For companies trading in the Duty paid sector, if HMRC deny or revoke an AWRS number, this means the company if it trades solely in wholesaler alcoholic drinks will be forced to cease operating. If this puts the company out of business then in the context of reducing the overall burden of excise duty fraud on the UK taxpayer, this has been deemed as acceptable by the Tribunal system
Due diligence documents should be scrutinised and checked by the business requesting them, it is not sufficient to merely ask for documents and then store them away at the business. Failure to carry out sufficient checks on a business could leave you at risk of assessments and wrongdoing penalties being raised, as well as having stock seized.
Always remember that the test of your due diligence is one of hindsight. Based on the paperwork and the operations of a trading partner, should you or ought you to have known that there was a problem or a concern?
1:Have A Process.
Go through the same steps every time you want to work with a new supplier or customer as this helps with consistency. You know what you do as part of your checks but other companies now need to confirmation you are meeting FITTED standards. HMRC will also ask you details of the process you go through as part of your Alcohol Wholesalers Registration Scheme (AWRS) interview. It is easier to write this down in the form of a policy, as this will give you a standard question form and checklist, reducing the opportunity for mistakes. If staff assist with completing these checklists, a written policy will assist with training and consistency.
2:Check The Paperwork.
It sounds basic but you cannot rely upon the paperwork given to you and you must confirm its contents. If you are given a Certificate of Incorporation, go onto Companies House or the appropriate state registry (gov.uk contains a list of key states) and confirm the company exists; Check the VAT number matches and is valid online (VIES); Confirm the directors and the registered address are as per your conversations; Carry out websites checks of passports and utility bills you have received (there are various website which permit you to confirm the validity of documents such as passport or ID cards and addresses).
3:Do A Site Visit, An Identity Check And A Credit Check.
You should meet an individual face to face, or, if this simply isn’t possible use Skype, facetime or one of the other online platforms. If you haven’t met the individual in person or seen them, how can you be sure that the person on the paperwork is who they say they are? You want a visual facial match to the documentation in front of you. Online credit checks are easily available and can be sourced on a one off basis for around £10 for UK registered entities or £30 for non UK companies. This will provide you with another independent check and a recommended credit rating. Many agencies also provide monitoring services for a monthly fee and you can create a portfolio of companies based upon their risk ratings.
4:Duty Status & Supply Chain.
For commercial confidentiality reasons you cannot force another company to provide you with details of their supplier but you can ask about where their goods are sourced from. Do they buy from manufacturers, other wholesalers, is it within the UK or from mainland EU? Are those goods duty paid or duty suspended? These answers can help form a defence if the goods are found to be non-duty paid. Remember that a refusal to provide this information is within itself an indicator of a potential risk, provided that no confidential information is requested.
5: Confirm Who Actually Controls And Owns The Company?
There is a difference between beneficial and controlling ownership. If another company owns the company you want to do trade with, you need to review that company’s ownership as well. Anyone who owns more than 25% of a company needs to be identified and ID obtained. Additionally you need to understand who controls the company and if they know what they are doing, e.g. a director who has a history in the industry or has had some exposure in a previous but similar type of company. You are looking to ensure that you are confident the company is run by the person or people you have met and that there isn’t someone in the shadows controlling the business.
6: Do You Know Who Is Moving The Goods And Why?
Some of the most common alcohol frauds are duplicate transport runs in from Mainland Europe, loads that do not actually leave the country, loads that do not actually make it to its destination. Understand who will be moving your goods and whether they have what is required to do this correctly as this could assist if any issues are raised at a later stage. This area is often disputed, but HMRC cannot require FITTED level due diligence to be undertaken on Hauliers by wholesalers unless they are directly instructed, but as they are companies involved in the supply chain of Alcohol, some due diligence on Hauliers must be undertaken.
7:The Deal – Is It Too Good To Be True?
How much are the goods? Does it make commercial sense? These are questions that only those in the industry who know the market pricing can answer, markets go up and down depending on demand and product quality. Law firms, accountants, tax advisors are not commercially trading in your market and cannot comment accurately on the commerciality of a deal.
Confidentiality – Your due diligence contains some sensitive business information. It is possible to clone a company and obtain fake utility bills on line so be aware. Don’t make yourself an easy target by putting your paperwork online and only provide your company paperwork to entities that you know you want to trade with and have carried out at least some basic checks on.
Our team can assist you if you have concerns about the quality of your due diligence checks for your current business or for a future business opportunities. If you would like to have a confidential discussion with a member of our team, please complete our Contact Us Form. We will call you back at a time that is suitable for you or you can contact us directly on 01908 414990.
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