Understanding HMRC Security Bond Requests
HMRC may request a security bond if they suspect a business might default on VAT, PAYE or NIC payments. Payment of the security bond may be required before the business is allowed to trade or continue to trade.
A security bond is a pre-calculated cash deposit designed by HMRC to reduce the risk of losing tax revenue due to a business failing to pay its liabilities. In the event of a default, HMRC will set the security bond against the debt which has arisen.
Where HMRC requires a security bond to be given it will issue a Notice of Requirement to the business and directors.
Nazaqat Maqsoom of KANGS explains the general nature of a Notice of Requirement.
When is a Notice of Requirement Issued?
HMRC may issue a Notice of Requirement in a number of circumstances including where:
- a company has been set up by a director(s) previously associated with one or more companies which have been liquidated,
- individuals or businesses have a history of failing to fulfil their tax obligations,
- it has strong reason to believe that there will be difficulty for the business in you complying with payment of tax obligations,
- a business has been bought via a pre-pack administration process,
- it believes that the company or business is insolvent.
Contents of a Notice of Requirement | Security Bond
A Notice of Requirement and its accompanying letter will specify the:
- reasons why security is required,
- nature of the tax(es) being incurred,
- amount of security required,
- manner in which the amount was calculated,
- deadline for payment,
- length of time HMRC will hold the bond,
- manner in which the bond can be paid,
- identity of others receiving the same Notice and whether joint and several security is required,
- procedure available for an Appeal against the decision of HMRC.
Joint and Several Liability
Notices of Requirement are sent to both the company and its directors to their home addresses.
In situations where HMRC believes that more than one individual has liability for PAYE, NIC or VAT payments, it may hold each individual jointly and severally responsible for payment of the whole debt.
Joint and several liability describes the way each director is ultimately potentially liable for the whole debt in the event of co-directors failing to discharge all or any part of the debt.
HMRC will issue Notices to each person stating the total sum payable. HMRC is not concerned as to how liability is apportioned between those liable. In the event of default, it will proceed against all parties.
Options Available Upon Receipt of Notice
HMRC states that it allows ‘a reasonable amount of time’ for payment of the bond.
Apart from making payment in full, the other options available are to:
- seek to negotiate a period of time and method for making payment,
- cease trade,
- appeal the decision of HMRC to require security.
Consequences of Failure to Provide a Security Bond
If a security bond is not provided in full within the given period, HMRC is highly likely to commence criminal prosecution proceedings as failure to comply with the requirement is an offence.
A successful prosecution will result in a very substantial fine; potentially up to twenty thousand pounds for every transaction concluded following the deadline for payment of the bond.
How Can We Assist?
The receipt of a Notice of Requirement may have a devastating effect upon any business. For a company or business which is insolvent, immediate cessation of trading may be essential to avoid the risk of prosecution for fraudulent trading.
A company or business hovering on the precipice of insolvency may find that payment, regardless of the security bond amount will push it into insolvency. Therefore, it is crucial to quickly examine the reasonableness and amount of the bond requested.
Even a business which considers itself comfortably solvent may discover that its cashflow may be stretched to such an extent by the payment that unanticipated steps may have to be taken to secure its position.
For any business, consideration must be given to the reasoning behind the decision of HMRC to issue such a Notice and whether steps need to be taken to protect its trading reputation.
By requesting a review within the thirty-day period allowed by HMRC, you can challenge both the reasonableness of issuing a Notice of Requirement and the amount demanded. It is essential the receipt of a Notice of Requirement receives your immediate attention.
If you have received a summons to attend court for failing to comply with a Notice of Requirement, our Team of experienced litigators can represent you in such criminal proceedings.
The Team at KANGS brings extensive expertise to individuals and businesses, gained from years of experience in assisting clients with potential insolvency issues and HMRC investigations.
Our team provides support and advice on insolvency and tax issues of every nature for individuals, companies, and their directors and officers. If we can be of assistance, please get in touch using the contact details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
Top ranked by leading legal directories Chambers UK and the Legal 500.
