When a company has been liquidated, or business has been sold out of administration or a pre-pack administration, the directors of the new company who have acquired and intended to run that business should be aware of Her Majesty’s Revenue and Customs’ ability to issue a Security Bond Notice.
HMRC can ask you to pay a cash deposit or bond if they believe there’s a risk you will not pay your tax or duty in time. If you do fail to pay your bill, HMRC will use the security to settle it. The letter they send you to demand this is known as ‘A Notice of Requirement and VAT Security.’
In this article, we’ll take a closer look at HMRC Security Bond Notices, and answer the questions you as company directors and owners are likely to have.
Tax deposits and bonds – overview
HMRC may ask for a deposit or bond if they believe there’s a risk you will not settle your bill on time. This is used particularly when a business has gone through an insolvency and been sold to a new company, or in cases where an individual has been actively involved in an existing or previous business and has failed to make their tax or duty payments.
Security may be required in the form of cash, or through an approved financial institution such as a bank providing a guarantee. Naturally, this can have a major financial impact on the new company.
HMRC will ask for the security by way of a legal document called A Notice of Requirement, which will tell you:
- How much you must pay
- When you should pay it by
- The accepted methods of payment
HMRC will usually warn you if they are considering asking for security unless they think it will make you less likely to pay your tax. As a way of warning, you will be sent a factsheet like this.
What taxes and duties might you pay a security on?
The list of taxes and duties ranges from PAYE and National Insurance Contributions to VAT, Landfill Tax, Aggregates Tax and more. You can see a full list of the different taxes and duties along with the length of time HMRC can keep the security for here.
Is it likely to affect you?
HMRC recognises that the vast majority of employers will comply with their PAYE/NIC/VAT obligations. So naturally, the securities will be targeted at the small number of employers who deliberately attempt to defraud HMRC.
HMRC defines this minority of employers as those who:
- Deliberately choose not to pay
- Owners who close an existing company one day, only to set up a new company to evade paying the old business’ creditors (otherwise known as Phoenix companies)
- Accumulate large PAYE, NIC and VAT debts, including penalties
- Do not cooperate with HMRC
How much security will HMRC ask you to pay?
HMRC will calculate the level of security to be held on a case-by-case basis. This will be dependent on the level of tax and duty they perceive to be at risk, the previous behaviour of the employer, and many other non-specified risk factors.
What should you do if you disagree with the decision?
If you receive a Notice of Requirement but disagree with the decision to request security, you have the right to an independent review of that decision. You should request a review within 30 days of the date of the Notice of Requirement. You should request an independent review if you:
- Think there are facts that have not been fully considered
- Can provide further information you think will change HMRC’s view
What are the sanctions if you refuse to pay?
If you refuse to comply with the request for security and your appeal is denied, HMRC reserves the right to prosecute by imposing financial penalties. The maximum fine for refusing to pay a security is £5,000.
What if you cannot afford pay?
Some directors will inevitably find themselves in a position where they’re simply unable to pay the security. In this case, HMRC stresses that employers with genuine financial problems will receive their support. If you find yourself in this position, contact the Business Payment Support Service before your payment deadline. Alternatively, contact us if you would like advice about any HMRC Tax problem.