The purpose of an HMRC security bond or deposit is to counteract a serious potential risk to their revenue in respect of current or future unpaid taxes.
HMRC will seek to cover any amount of potential unpaid taxes with the bond, so that if the company or individual do not pay their tax bill, HMRC can deduct the amount due from the bond given.
The security can only be given in monetary form (made via cheque, bank deposit etc) – not via a property or other high-value items. This ensures that HMRC is not exposed to any fluctuation of the value of any items or property as they would if bonds were permitted to be given in this form.
The Notice of Requirement
HMRC will issue a demand for a security bond using a Notice of Requirement. They are only permitted to issue such demands in respect of certain taxes and National Insurance Contributions, including VAT, PAYE deductions and Class 1 National Insurance Contributions.
The Notice of Requirement will stipulate which tax it relates to. It’s important to note that the bond can only be used by HMRC to offset the non-payment of that particular tax. This ensures that the bond is being used to counteract a genuine and identified risk within the remit of the law.
How Serious Does the Threat of Non-Payment Have to be Before HMRC will Demand a Security Bond?
HMRC will only demand security in situations where they think there is a serious risk to their revenue. They will carry out a detailed risk assessment of the particulars of the case and will only issue a Notice of Requirement in situations where they think it is reasonable and proportionate to do so.
In reality, HMRC will be looking particularly at businesses involved in phoenixism (where a series of insolvencies and new companies are created to avoid debt obligations), repeated refusals to pay until HMRC are about to start proceedings against the company, or where there is suspected tax fraud.
Only a small proportion of businesses and employers who do not pay, or are at risk of not paying their taxes are issued with Notices of Requirements – a fact in itself that suggests that HMRC does not make the decision to demand security without a high threshold being met.
How does HMRC Use the Security Bond?
The Notice of Requirement will stipulate the period for which the security is being demanded. If the company or employer fulfils all of its tax obligations during this period, the bond will be returned to them or applied to their tax account to offset against future bills. In some situations, when the company or employer are fulfilling their tax obligations properly, HMRC will return the security to them before the end of the period stipulated in the Notice of Requirement.
If the employer or company do not fulfil their tax obligations in relation to the tax for which the security bond was demanded, HMRC will deduct any unpaid or outstanding amounts from the bond amount.
Need Advice about Security Bonds?
If you are being threatened by HMRC with the issue of a Notice of Requirement demanding security from you personally, or from a company you manage, please contact us. This is a very serious situation and one that can have very serious results. Call us on 08000 746 757 for a no-obligation discussion, or use the live chat feature on the page.