Understanding HMRC security bonds for VAT, PAYE, and NI

When will HMRC request a tax deposit or security bond?

A security bond is a tax deposit requested by HMRC to cover potential future tax liabilities if your business is at risk of financial difficulties. If you are required to provide a security deposit, you will receive a Notice of Requirement specifying the amount and the deadline for payment.

What is an HMRC security bond and will I be required to give one?

An HMRC security bond can be likened to a deposit that safeguards HMRC in the event your business struggles to meet its tax obligations. If you fail to pay the owed tax, HMRC will utilise the security bond to settle the balance. While security bonds can be requested for various taxes, they are more commonly associated with VAT.

What is a Notice of Requirement to give security for VAT, NI, or PAYE?

If you are required to furnish a security bond to HMRC, you will receive a Notice of Requirement specifying the amount and the deadline for payment. This notice will also outline whether you are being asked to provide security for VAT, PAYE, NI, or a combination of all three tax obligations.

Why have I been asked to give an HMRC security bond?

It is not standard procedure for HMRC to request a VAT, PAYE, or NI security bond from new start-ups. Instead, a security bond is typically requested if HMRC has substantial grounds to believe that you may struggle to meet your liabilities.

This situation often arises when a company is established by directors who have previously undergone a company liquidation or if a company has been sold out of administration. Therefore, if you are considering acquiring a company from liquidation, it is advisable to factor in the likely cost of this security bond into your calculations before finalising the deal.

In certain instances, a Notice of Requirement may be issued to an existing company already registered for VAT. This would only occur if the director has fallen behind on tax obligations, and HMRC is concerned about the company’s long-term prospects. As long as you have maintained regular payments to HMRC, there should be no cause for concern about this happening.

When will I need to make the payment?

If you’ve received a Notice of Requirement letter to provide a security bond, you must pay it when you register for VAT. It’s important to note that you are not required to register for VAT until your turnover of ‘taxable supplies’ reaches the threshold at which VAT becomes payable. As of the 2023-2024 tax year, this threshold is currently set at £85,000 over a 12-month period. This period is not tied to the calendar or tax year; instead, it is a rolling period that can start at any point during the year.

You only become obligated to provide the security bond once your earnings trigger the threshold. This allows you to start your company and commence trading without an immediate payment obligation. It provides an opportunity to accumulate cash reserves through your earnings, which can then be used to pay the bond.

In most cases, the security bond is paid through a cash payment, although it’s possible to issue a bank guarantee for the amount if you can secure an agreement for this.

How much will I need to pay?

Usually, HMRC examines your previous company and determines 4 to 6 months of VAT payments, using this figure as the required level for the security bond. If you receive a Notice of Requirement, you are legally obliged to make the payment. If you are unable to afford it or choose not to pay, you must cease trading immediately. Ignoring a request for a security bond is a criminal offence, and the penalties are severe. You could incur a £20,000 fine for each invoice you issue.

Read More :

• What is the role of the HMRC Fraud Investigations Service (FIS)?
• What happens to your limited company if you ignore HMRC?
• What is a Personal Liability Notice?
• What are corporation tax late filing penalties and interest
• What is a HMRC Time to Pay Arrangement

Will I get the security bond back?

The security bond is typically held for a duration of 12 to 24 months. Throughout this period, your tax affairs will be closely monitored to ensure timely payments and no arrears. If you have consistently met your VAT obligations, the bond will be returned to you in full. 

If you have received a Notice of Requirement or are struggling to meet your HMRC obligations, seeking expert advice is crucial. Vanguard Insolvency can provide a free, no-obligation appointment at your nearest office. During the meeting, you can explore various business rescue and recovery options, and our team of licensed insolvency practitioners will recommend the most suitable solution for you and your business.