A security bond serves as a safeguard against potential tax liabilities and is a tax deposit required by HMRC (Her Majesty’s Revenue and Customs) in the United Kingdom.
It is typically requested when individuals or businesses are deemed to be at risk of encountering financial difficulties in the future.
When a taxpayer is notified by HMRC and instructed to provide a security deposit, they will receive a Notice of Requirement outlining the specific amount that must be paid and the deadline for payment.
This security bond ensures that in case of any tax liabilities arising down the line, HMRC has a reserve to settle those obligations, thereby mitigating financial risks for both the taxpayer and the government
What is a Notice of Requirement to give security for VAT, NI, or PAYE?
When HMRC requests a security bond from you, they will issue a Notice of Requirement, which not only specifies the amount you need to pay and the deadline for payment but also outlines whether the security is needed for VAT, PAYE, NI, or a combination of these tax obligations.
This comprehensive Notice of Requirement ensures transparency and clarity regarding the specific tax liabilities for which you are being asked to provide security.
By clearly stating the nature and scope of the tax obligations involved, HMRC aims to facilitate a smooth and efficient process for both taxpayers and the tax authority.
Why have I been asked to give a HMRC security bond?
Typically, new start-ups are not required to provide a security bond for VAT, PAYE, or NI. HMRC only requests a security bond if there are substantial reasons to believe that a business may struggle to meet its tax obligations.
This situation commonly arises when a company is established by directors who have previously undergone company liquidation or when a company has been acquired out of administration.
Therefore, if you are considering purchasing a company emerging from liquidation, it is prudent to factor in the potential cost of a security bond when assessing the overall financial aspects of the deal.
Occasionally, an existing company that is already VAT registered may receive a Notice of Requirement for a security bond. This situation arises if the director has fallen behind on their tax obligations, and HMRC expresses concern about the long-term viability of the company.
If you have consistently maintained your tax payments to HMRC, there is no need for apprehension about receiving such a notice. By diligently fulfilling your tax obligations, you can avoid the need for a security bond and ensure a stable relationship with HMRC.
When will I need to make the payment?
Upon receiving a Notice of Requirement letter requesting a security bond, it is important to note that payment is typically required upon registering for VAT. However, it is essential to remember that registration for VAT is only necessary once your turnover of taxable supplies surpasses the threshold at which VAT becomes payable.
For the 2023-2024 tax year, this threshold stands at £85,000 over a 12-month period. It is crucial to understand that this 12-month period is not fixed to the calendar or tax year but instead operates on a rolling basis, commencing at any point during the year.
The requirement to provide a security bond is triggered only when your earnings surpass the threshold, ensuring that you can initiate and conduct business operations without an immediate payment obligation. This enables you to accumulate a cash reserve through your earnings, which can subsequently be utilized to fulfill the security bond requirement.
In most cases, the security bond is typically settled through a cash payment. However, there is a possibility of arranging a bank guarantee for the specified amount if such an agreement can be reached and approved. This alternative payment method provides flexibility while ensuring compliance with the security bond obligation.
How much will I need to pay?
HMRC generally conducts an assessment of your previous company and determines the appropriate level of the security bond required based on 4 to 6 months of VAT payments. If you receive a Notice of Requirement, it is crucial to understand that paying the specified amount is a legal obligation.
In the event that you are unable to afford the payment or choose not to comply, it is imperative to cease trading immediately. Ignoring a request for a security bond is considered a criminal offense, and the associated penalties are significant.
Each invoice issued without meeting the security bond requirement could result in a fine of up to £20,000, underscoring the importance of adhering to the legal obligations set forth by HMRC.
Will I get the security bond back?
Yes, the security bond, once provided, is usually held for a period ranging from 12 to 24 months. Throughout this duration, diligent scrutiny will be exercised over your tax affairs to ensure that timely payments are made and that you do not fall behind on your obligations.
If you have consistently fulfilled your VAT obligations and maintained up-to-date payments, you can expect the security bond to be returned to you in its entirety. This process not only incentives adherence to tax obligations but also offers the opportunity for businesses to regain their security bond upon demonstrating responsible and timely tax management.
Frequently asked questions
The HMRC VAT security deposit is a required deposit by the UK's Her Majesty's Revenue and Customs to protect against potential tax liabilities. It is based on previous VAT payments and held for 12-24 months. Compliance with VAT obligations results in a full refund of the deposit.
A HMRC bond is a tax deposit requested by HMRC to settle any tax liabilities that may arise in the future if you are at risk of entering financial difficulty. I What is the HMRC VAT security deposit?
What is HMRC bond?
Conclusion
In conclusion, the HMRC security bond is a matter of utmost seriousness, and if you have received a Notice of Requirement or are facing challenges in meeting your HMRC obligations, seeking expert advice is crucial. We recommend reaching out for assistance promptly by utilizing our online enquiry form.
Professional guidance can help navigate the complexities of the situation, ensuring compliance with HMRC requirements and safeguarding your financial interests.
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.