Direct Selling Legislation
Direct selling businesses and independent direct sellers
are subject to the same financial and consumer protection legislation that
govern any business selling consumer goods services. However there are a
few additional legislative requirements. These are:
Licences
In the UK, there is no requirement for a company or an individual to have
a license to operate a direct selling business. The same is generally true
for direct sellers, although licenses are required in the Isle of Man and
certain Channel Islands States. If a direct seller makes an unsolicited
call on a private home; makes a sale; delivers the goods and collects
payment simultaneously, they may be required to have local police
authority permit.
Order cancellation rights
All direct sales away from normal retail premises are subject to the
consumer being given a cooling off period in which to cancel their order.
The law requires that if the sales approach was unsolicited and if the
order was in excess of £35 then the consumer must be provided with a
notice setting out their right to cancel the order within 7 days. For DSA
members, the DSA Consumer Code extends this period to 14 days for sales of
any value and regardless of whether it was solicited. Similar
requirements, under the Distance Selling regulations govern orders
received by a direct seller by phone, mail or e-mail. For further
information, consult one of the legal advisors to the DSA.
VAT
Direct selling businesses in the UK, are subject to special rules in
relation to VAT. These require that a direct selling business is required
to collect at the retail selling prices of the goods sold, regardless of
whether their independent direct sellers are personally registered for
VAT. For further information consult one of the tax advisors to the DSA.
Multilevel Marketing
Many direct selling businesses are now organised on a MLM or network
marketing basis, although they may use neither term in their promotional
material. The distinction between MLM and a conventional direct selling
structure is the nature of the earnings opportunity offered to new direct
sellers. If a participant is offered an opportunity to both retail
products and to receive additional rewards from the sales of others they
may recruit into the business, then the business is likely to be MLM or
Network Marketing and therefore subject to the Trading Schemes Regulations
1997. For further information and advice, consult one of the legal
advisors to the DSA.
Summary of UK legislation governing Multi Level
Marketing
(effective 6 Feb 1997 for new businesses and 5 Aug 1997 for
businesses in operation prior to 6 Feb)
1. Relevant Act of Parliament
Fair Trading Act 1973, Part XI, as amended by the Trading Schemes Act
1996. (The Act)
2. Definition of a regulated scheme
Section 118 of the Act
Any scheme where a promoter supplies goods or services
which are supplied:
a. to other persons under transactions effected by
participants, or
b. to persons introduced by participants and, in either case, where the
prospect of benefits is offered to participants in respect to any of the
following:
• introduction of other participants
• continued participation of participants
• change of status of participants within the scheme
• acquisition and or supply of goods and or services to or by any person
Exclusions
These include direct selling businesses where:
• all participants are VAT registered
• the sales plan is single level and the maximum reward for recruiting
another participant is £50.
3. Trading Schemes Regulations 1997
Section 119 of the Act
Promotional Material
All recruitment material other than newspaper, magazine advertisements and
on radio or television, but including video and the Internet, must include
the following:
• the name and address of the promoter
• a description of the products and or services offered
• prescribed references to the recruitment offence and earnings claims.
Advertising
All recruitment advertisements in newspapers and magazines must comply
with the ASA Code.
Contracts
All participants shall be provided with a written and signed contract
which shall include:
• name and address of the promoter and a description of the products and
or services,
• description of the participant's role and financial obligations for 12
months, which the promoter can only change by giving at least 2 months'
notice,
• statements giving a 14 days cooling off period and thereafter, 14 days
in which to terminate a contract without penalty,
• terms under which goods can be returned for refund and under which
previously paid commission and bonuses may be recovered,
• prescribed warnings relating to the recruitment offence and earnings
claims.
Initial investments
No more than £200 may be received or promised by a participant within 7
days of signing a contract.
Rights on termination of a contract
On termination of a contract, a participant has a right to:
• be released from all future obligations other than 'poaching' and any
non-competing obligations specified in a contract, and to
• return goods in good condition and recover the sum paid, inclusive of
VAT, if purchased within 90 days of termination. This would be the full
sum paid where the promoter terminated the contract. On termination by the
participant, then the sum would be reduced by diminution in value caused
by the participant and by a reasonable handling charge.
Recovery of commissions
On termination of a contract, a promoter may only recover those previously
paid commissions relating to returned goods that were paid within 120 days
of termination.
Sales records
A promoter must supply participants with an invoice or receipt in respect
of all purchases of goods and services.
4. Offences
Section 120 of the Act
It is an offence for anyone who is a promoter or
participant in a regulated scheme to:
• invite anyone to make payments to the promoter or to a participant in a
scheme by promising benefits in respect of the introduction of other
participants into the scheme.
• contravene the Trading Schemes Regulations 1997.
A comprehensive guide to all legislative requirements is
available to all DSA members. How to
become a member 
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