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What is a HMRC security bond for VAT, PAYE or NI?

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Date Published: 10/11/2023

Understanding HMRC security bonds for VAT, PAYE, and NI

Where HMRC feels there is a risk of non-payment of tax from a company, they may request a security bond is paid before trading can start or continue. This is done by issuing a Notice of Requirement in respect of VAT, PAYE, or National Insurance. Security bonds are asked for in order for HMRC to reduce their risk of revenue loss from non-payment of tax.

In certain instances, such as when an insolvent company is bought out of administration by the existing directors, a business may not be able to trade without providing such a bond.  

But other scenarios also result in this payment being necessary, typically when there have been issues with non-payment in the past. Security bond notices are sent to company directors at their home addresses, as well as to the company, and as a director you become personally liable for the payment of the sum.

What is a HMRC VAT, PAYE, or NI security bond and when is one requested?

A VAT security bond is a pre-calculated sum of money that must be paid to HMRC by a company director or other officer. This bond, or cash deposit, can cover a number of taxes and duties, but when you receive a VAT security bond Notice of Requirement it means that HMRC believe you present a risk of non-payment of your VAT liability.

A notice that this payment is required could be received in various circumstances, including when:

  • Your company has a poor payment history with HMRC, and has previously incurred penalties
  • You’ve bought a business via the pre pack administration process
  • You’ve deliberately failed to meet your HMRC liabilities, and haven’t been cooperative
  • HMRC believes your company is insolvent

There may be grounds for appeal if you feel the notice is unjustified, and wish to challenge HMRC’s decision.

What is a HMRC security bond Notice of Requirement (NOR)?

HMRC may write to you initially to warn you of the situation regarding your VAT liability. A VAT security bond Notice of Requirement, or NOR, is the official notification, however, and details HMRC's full requirements.

The Notice of Requirement should include the following details:

  • How much you need to pay
  • The payment deadline
  • How long the bond will be held by HMRC
  • Methods of paying the security bond

A covering letter should also detail:

  • Why you’re being asked to pay the security bond
  • How the sum was calculated
  • Whether joint or several security is required, plus the details of any other people receiving notices
  • What happens if you don’t pay
  • The appeals procedure should you wish to challenge HMRC’s decision

HMRC state you will be given "a reasonable amount of time" from the date of notification to pay the bond. HMRC take a variety of factors into account when calculating how much security you need to provide, including your perceived level of risk and likely tax liability.

What can you do if you receive a VAT, PAYE, or NI Notice of Requirement?

You have a number of options in this situation, including:

  • Paying the amount in full
  • Negotiating a Time to Pay arrangement for tax arrears
  • Ceasing trade
  • Disputing the notice

What are the implications for businesses in receipt of a Notice of Requirement of a HMRC security bond?

When an insolvent company receives a notice of requirement this demand for payment can compromise stretched cash flow even further, but even for profitable companies, paying a VAT, PAYE, or NI security bond is likely to severely deplete available cash levels and could cause serious long-term problems.

New companies set up following pre-pack administration won’t usually be able to trade until the bond is paid in full to HMRC's satisfaction.

Non-payment of a VAT security bond is a criminal offence, and HMRC are highly likely to take you to court as a result. The financial penalties are significant – as much as £20,000 for every transaction that is allowed to go through the business after the payment deadline has passed.

Can I appeal against a notice of requirement?

You can request a review within 30 days of receiving a notice. Essentially, the review will challenge whether HMRC has been ‘reasonable’ in demanding this security, and it’s advisable to seek professional assistance in this respect.

Licensed insolvency practitioners understand the system, and will advise on whether an appeal is viable. If so, they’ll also help you present a clear, well-defined case backed up by solid documentary evidence.

If you have received a HMRC security bond notice of requirement for VAT, PAYE, or National Insurance, or would like more information on the ramifications, call one of our expert team at Begbies Traynor. We operate from nationwide offices, and will be able to arrange a same-day consultation to discuss your situation.

About The Author

Meet the Team

Jonathan was a founding director of Cooper Williamson which was acquired by Begbies Traynor in October 2013. 

Jonathan was involved in the inception and continued with the development of the "Real Business Rescue" website, which provides advice and assistance for the directors of limited companies which are experiencing various degrees of financial distress throughout the UK. 

Jonathan is a member of the Insolvency Practitioners Association MIPA and is a Member of The Association of Business Recovery Professionals MABRP.

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