HMRC may ask for a security bond if it believes there is a serious risk you will not pay your tax duty on time. Typically, HMRC will state that they believe the company is insolvent or about to become insolvent.
Where HMRC thinks a security bond is necessary, it will calculate the amount of the security based on the evidence of the individual case.
In the case of VAT, this will normally be the estimated liability for a six month period if you file quarterly returns, or the estimated liability for a four month period if you file monthly returns. The security will also include any existing arrears from the current or a previous business. HMRC can also insist that the company changes from quarterly to monthly returns if it believes that will increase the chances of compliance.
In the case of PAYE/National Insurance contributions, the calculation will be based on your usual monthly PAYE payment, typically spread over a quarterly period. It will also include any arrears owed.
Forms of security
HMRC will only accept the following forms of security:
- Electronic payment to a specified HMRC bank account;
- A cheque or banker’s draft;
- A guarantee in the form of a performance bond authorised and approved by a financial institution;
- Payment into a bank account held in the joint names of the taxable person and HMRC.
You can appeal to the Tax Tribunal if you do not agree with the way the security bond has been calculated or the fact that a notice to provide security has been issued in the first place. Alternatively, you can also ask to have your case reviewed by HMRC’s internal review team before appealing to the Tribunal. If your appeal is unsuccessful and you fail to provide a security bond when one has been required, you face a potential fine of up to £5,000.