HMRC Security Bonds are financial guarantees that HMRC requires from certain businesses. As a UK business owner, you may face this requirement if HMRC considers your company a tax compliance risk.
When multiple directors are involved, HMRC serves each person with an individual Notice of Requirement for the full security amount, making them jointly and severally liable.
Key points:
The bond amount typically ranges from 4 to 6 months of tax for the business, although sometimes HMRC issues the bond for the full amount of the arrears
It secures future tax payments, including VAT, PAYE, National Insurance, Corporation Tax, or Construction Industry Scheme (CIS) contributions.
Continuing to trade without paying the required bond is a criminal offence.
For instance, if your monthly VAT liability is £10,000, HMRC might demand a bond of £40,000 to £60,000.
When is a Security Bond Required?
HMRC demands security bonds from businesses they deem high-risk for tax non-compliance. You may face this requirement if:
Your business has defaulted on tax payments
You’re forming a new company after liquidating others
You operate in a high-risk sector
Your business shows inconsistent tax compliance
You’re purchasing a company out of liquidation
For example, if you’re buying a restaurant that went into liquidation, HMRC might require a bond to ensure future tax payments.
The Notice of Requirement to Give Security (NOR)
When HMRC determines that a security bond is necessary, it issues a Notice of Requirement to the business. This document outlines the amount of the bond, the specific taxes it covers, and the deposit deadline. It is a formal notice that legally binds the business to comply with the terms set by HMRC.
While security bonds are more commonly associated with VAT, businesses might also be required to secure bonds for PAYE and National Insurance contributions.
When Will You Be Asked for the Bond Payment?
Typically, the security bond payment is required before the business registers for VAT. Payments can be made through direct bank transfers, cheques, or occasionally, by setting up a bank guarantee if agreed upon by HMRC.
HMRC’s Monitoring Process During the Bond Period
Once a security bond is paid, HMRC closely monitors the business’s tax affairs to ensure compliance. This period of observation typically lasts between 12 and 24 months, during which HMRC assesses the timely payment of taxes and adherence to tax laws.
Conditions for the Return of the Security Bond
HMRC will release the bond back to the business once it is satisfied that there is no longer a risk of non-payment. The exact conditions for the return, such as the length of the monitoring period and specific compliance metrics, are typically outlined in the Notice of Requirement.
Seeking Help for HMRC Security Bond Issues
Dealing with HMRC’s demands for security bonds can be daunting and complex, particularly for businesses already facing financial problems. If your business is under pressure from HMRC, it is essential to seek immediate experienced guidance.
At Company Debt, we understand the challenges you face when dealing with HMRC debts and the conditions of a security bond. We offer a free initial consultation to discuss your specific situation, explore potential solutions, and provide a clearer understanding of your options.
FAQs on HMRC Security Bonds
What happens if a business cannot afford the security bond requested by HMRC?
If a business cannot afford the security bond requested, it’s crucial to communicate this to HMRC promptly. There are sometimes negotiations possible, such as setting up a payment plan or providing alternative forms of security like a bank guarantee. However, ignoring the request or failing to comply can lead to severe legal consequences.
Can a security bond be appealed if a business believes it’s been wrongly imposed?
Yes, a business can appeal an HMRC decision to impose a security bond. The appeal must be lodged within 30 days of the Notice of Requirement. The process involves submitting evidence to show why the bond should not be required, and it may be beneficial to seek legal or professional advice to strengthen the case.
What are the possible penalties for trading without paying the required security bond?
Trading without paying the required security bond when mandated by a Notice of Requirement can lead to criminal charges, fines, or other enforcement actions by HMRC. Penalties can be severe, including fines that can run into thousands of pounds, emphasizing the importance of compliance.
