Fitted due Diligence and disputes

HMRC due diligence requirements are known by the name FITTED and are also referred to as “the due diligence condition”. FITTED was introduced to the duty suspended Excise industry in Nov 2014, 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.

If your due diligence still involves the collection of paper and no further checks or questioning of your customers and suppliers, you are at significant risk of losing HMRC licence approvals.

  • Just collecting paperwork, e.g. Certificates of incorporation, Directors Passports and Utility bills is not sufficient.
  • The days where companies who wanted to trade could just swap files of paper and say they have done due diligence are gone.
  • If you want to hold an AWRS or WOWGR approval the ‘old style due diligence’ is not good enough.

The Due diligence required for WOWGR or AWRS approved companies is now significantly higher than just 3 years ago. At a high level there must be:

  • evidenced checks undertaken on proposed trading partners
  • visits to premises
  • checklists of documentation received and verified
  • records of questions asked
  • risk assessments made and filed
  • continuous monitoring undertaken whilst trading takes place.

Failure to comply with FITTED and to have written evidence of your checks will likely result in HMRC deeming the business non-compliant and this constitutes reasonable cause to deny or revoke an approval. The lack of checks may also result in a finding that individuals involved in the company are not ‘fit and proper’.

FITTED applies to all entities approved as WOWGR or AWRS licence holders. Just because a business is big doesn’t mean FITTED does not apply. 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.

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