HMRC security bonds are financial guarantees required by Her Majesty’s Revenue and Customs (HMRC) for businesses deemed at risk of non-compliance with tax obligations.
These bonds serve as a precautionary measure to safeguard future VAT and other tax revenues. They are useful when businesses have a history of late payments or have faced insolvency issues in the past.
These laws empower HMRC to demand security from businesses that pose a significant risk of tax default. This includes new enterprises with directors who previously failed in tax compliance, as well as businesses that have undergone insolvency proceedings.
HMRC may require a security bond in several circumstances, including:
What is an HMRC Notice of Requirement (NOR) for a Security Bond?
An HMRC Notice of Requirement (NOR) for a Security Bond is the initial letter you’ll receive from HM Revenue and Customs outlining their request for a financial security deposit or bond. This letter formally notifies you of HMRC’s demand for a bond and provides important details, including the consequences of non-payment.
A typical NOR includes:
Required bond amount
Deadline for payment
How long HMRC will hold the bond
Permitted payment methods
Whether joint or several security is required
Details of the appeals procedure
What are the Consequences of Failing to Provide the Security Bond?
Non-payment of a VAT security bond is a criminal offence. HMRC is highly likely to take legal action against your businesses if you fail to comply. The financial penalties for non-payment are significant: businesses can face fines of up to £20,000 for every transaction conducted after the payment deadline has passed.
In essence, receiving a Notice of Requirement[1]Trusted Source – GOV.UK – HMRC NOR for an HMRC security bond presents businesses with a difficult choice: either pay the bond and risk depleting vital cash reserves or face potential criminal charges, fines, and an inability to trade.
We highly recommend seeking professional advice to navigate this complex situation and understand all your options.
What are Your Options if You’ve Received an NOR?
If your company has received a NOR demanding a security bond, here are the options to consider:
Settle Your Liabilities – The most straightforward option is to pay the full amount of the security bond by the deadline specified in the NOR.
Cease Trading – In some cases, particularly if your company is facing insolvency, you may choose to cease trading altogether. This would involve winding down the business via a voluntary liquidation in conjunction with an insolvency practitioner such as ourselves.
Dispute the Notice If you believe that the NOR for a security bond has been issued incorrectly or unfairly, you have the option to dispute the notice with HMRC. However, you will need to provide compelling evidence and grounds for your dispute.
How CompanyDebt Can Assist You
If you are facing the prospect of providing a security bond, seeking expert advice can be invaluable. CompanyDebt can assist by offering tailored advice, helping with the preparation of necessary documentation, and guiding businesses through the HMRC compliance process.
Any UK business deemed at high risk of non-compliance with tax obligations may be required to provide a security bond. This typically includes businesses with a history of tax defaults or insolvency issues.
Can a security bond requirement be waived by HMRC?
It is possible for a security bond requirement to be waived if a business can demonstrate improved financial stability and compliance with tax obligations. This requires a formal review and approval by HMRC.
What types of bonds are accepted by HMRC?
HMRC accepts either cash deposits or surety bonds from approved financial institutions as security bonds. The choice depends on the business’s preferences and financial circumstances.
How long does it take to process a security bond with HMRC?
The processing time for a security bond can vary but generally takes several weeks. This period allows HMRC to review the submitted documents and the bond’s adequacy against the business’s tax liabilities.
What happens if a business cannot afford the required security bond?
If a business cannot afford the required security bond, it should contact HMRC to discuss possible payment arrangements or alternative compliance measures that might be acceptable.
Are there any penalties for late submission of a security bond?
Yes, failing to submit a security bond by the deadline can result in penalties, which include fines and possible legal actions, depending on the extent of the delay and the risk posed by the business.
How often does HMRC review the necessity of an existing security bond?
HMRC reviews the necessity of an existing security bond typically every two years or when there is a significant change in the business’s financial status or tax compliance history.
Can changes in business structure affect my security bond obligations?
Yes, significant changes in business structure, such as mergers, acquisitions, or leadership changes, can affect security bond obligations. Such changes should be reported to HMRC, which may reassess the bond requirements.
What support does Company Debt offer for negotiating with HMRC?
Company Debt provides assistance in negotiating with HMRC, offering services like preparing documentation, advising on compliance strategies, and representing businesses in discussions to ensure favorable terms and conditions for security bond requirements.
References
The primary sources for this article are listed below, including the relevant laws and Acts which provide their legal basis.
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