When faced with a notice of requirement to pay a security bond for future VAT, PAYE or National Insurance liabilities, you have six options. You can:
- Pay the security bond along with any other outstanding tax liabilities by the deadline given in the notice of requirement;
- Contact HMRC to ask for more time to pay your tax liability;
- Ask for other evidence, not known by HMRC, to be taken into consideration;
- Ask for a review by someone other than the issuing HMRC officer;
- Appeal to an independent tribunal;
- Wind up the company if it cannot afford to pay.
There is another way you could approach the situation not included in the above (for a good reason), and that is to complete ignore HMRC’s request for a security bond. This is not something you should do, and here’s why…
Ignoring a security bond request
The fact that HMRC is requesting a security bond means it is seriously concerned that the business could be insolvent. It does not want any further tax liabilities to be created, so it is asking for future tax bills to be paid up front. Do this, and you will be allowed to continue to trade.
If you are unable to pay the security, do not appeal the decision, or cannot come to an arrangement with HMRC to pay security in instalments, your business is insolvent, and you must cease to trade. If you simply ignore the notice and continue to trade, HMRC can take you to court, and you could face a maximum fine of £5,000 for every breach without providing security.
Worse still, an HMRC notice of requirement to pay a security can typically be extended to include the director being made jointly and severally liable with the company. That means, if the company is unable to cover the tax liability, the company owner/directors will have to pay the amount owing from their personal funds. In some circumstances, this can lead to severe financial difficulties and even bankruptcy.