All kinds of different businesses experience problems paying their tax bills and thankfully HMRC Security Bonds are rare.
For the vast majority of businesses, these HMRC problems stem from a temporary or unexpected cash-flow shortfall, and their liabilities are paid in full when the money becomes available.
In other instances, companies that have a record of paying their tax obligations may be able to reach a Time to Pay arrangement with HMRC, usually over a period of 12 months. This allows the company to pay the outstanding liability in instalments.
However, in the case of persistent late or non-payers, HMRC also has another weapon in its armoury to reduce the likelihood of lost tax revenues.
Once a persistent tax defaulter has been identified, HMRC will usually demand all outstanding payments and returns are brought up to date. Penalties and interest will then be applied where appropriate.
Finally, HMRC can require the payment of a guarantee, in the form of a tax deposit or bond, against future liabilities. This is called a security.
HMRC tax securities
HMRC will ask you to pay a deposit or security if it believes there’s a serious risk you will not pay your future tax liabilities on time. This situation will be more likely if there is a history of previous company closures with HMRC losing out.
A security can be requested for a number of different types of tax. This includes:
• PAYE deductions
• Class 1 National Insurance contributions
• Landfill Tax
• Aggregates Levy
• Climate Change Levy
• Insurance Premium Tax
• Gaming and Betting Duty
• Air Passenger Duty
You will usually be warned of the need to provide an HMRC security bond (NOR) unless HMRC thinks it will make you less likely to pay your tax. You will then be sent a Notice of Requirement by HMRC.
The Notice of Requirement (NOR)
The Notice of Requirement (NOR) is a formal written notice to a company that it is required to pay security by a certain date. This is accompanied by a covering letter which explains:
• Why the security is required;
• How the amount of security required was calculated;
• You right to request time to pay PAYE and NIC liabilities;
• Further information about joint and several liability.
The NOR itself will also explain when the security must be paid (not less than 30 days from the receipt of the NOR); how long the security will be held; the amount owed; and how the security should be paid.
The tables on this page will give you a better idea about how long the securities can be held; what you can do if you don’t agree with the security; and the penalties for failing to pay.
What constitutes an acceptable form of security?
HMRC will not accept company property or other high value assets as a deposit. It will only accept the following:
• An electronic payment to a specified HMRC bank account;
• A cheque or banker’s draft;
• A guarantee in the form of a performance bond that’s authorised and approved by a financial institution;
• Payment into a bank account held in the joint names of the taxable person and HMRC.
What if you refuse to pay the security?
You can ask for a review of the security by an independent officer at HMRC, or you can appeal against the decision at a tribunal.
The appeal must be lodged within 30 days of the date of the NOR. To continue to trade without providing security is a criminal offence (unless you have lodged a successful appeal) and HMRC has the right to take the business to court.
Prosecutions can be very costly with financial penalties of up to £5,000 per transaction if trading continues.
When appealing the requirement for a security, you have to challenge whether the HMRC decision is reasonable.
In many cases, securities are required when a previous business has been liquidated with VAT liabilities, only for a new business to continue in the same line of work.
How can we help?
If you receive a Notice of Requirement for a Security Bond it is essential you act immediately.
If a case is referred to us quickly then we have the expertise to help. For more information, please get in touch with our team.