The security bond is one of the most powerful weapons in HMRC’s armoury to combat persistent late or non-payers of tax.
The security bond acts as a deposit against the future non-payment of taxes, so HMRC will ask for a bond to be paid if it believes there is a serious risk a company will not pay its future tax liabilities on time.
Failure to pay the bond while continuing to trade is a criminal offence. Prosecutions can be very costly, with financial penalties of up to £5,000 per transaction if trading continues. For this reason, many companies that cannot, or simply will not pay a security bond can be forced out of business.
Could you simply liquidate the company?
Some company directors assume that liquidating the company and starting a new business is one way to avoid paying the security bond. However, security bonds can be transferred to any other connected company, so the bond will still need to be paid.
In many cases, this is exactly why security bonds are requested in the first place. Where there is a history of previous company closures with unpaid tax liabilities, HMRC does not want to lose out further so will ask for a security bond to be paid. This is particularly common when the new business continues in the same line of work.
There is also likely to be a joint and several liability elements to the security bond, which means named individuals can be made personally liable for the security bond if the company does not pay. For this reason, HMRC security bonds can be very stressful for company directors, and something they should seek expert help with immediately if they are genuinely unable to pay.
You want to wind the company up
If you cannot afford to pay the security bond, have not agreed more time to pay with HMRC, and cannot access finance elsewhere, you may choose to voluntarily wind up your company through a creditors’ voluntary liquidation. The repercussions of this process are serious and far-reaching, so you should discuss your options with an insolvency expert before you make a decision.
Author: Mike Smith