HMRC Security Bonds: What Company Directors Need to Know

HMRC uses security powers where it assesses that tax revenue is at significant risk.

This can be particularly relevant where there has been a history of:

• serious or repeated tax arrears;
• late payment;
• previous business failures involving unpaid tax;
• poor compliance;
• businesses being repeatedly closed and restarted; or
• other circumstances suggesting future liabilities may not be paid.

HMRC risk-assesses cases and generally focuses security action on situations where it considers future revenue to be at risk.

If the wider issue is unpaid tax rather than the security itself, our HMRC Tax Debt guide explains the broader repayment, restructuring and insolvency options available to limited companies.

A Notice of Requirement, often shortened to NOR, is the formal document HMRC uses to require security.

It explains:

• HMRC’s legal power to demand security;
• the amount required;
• when it must be provided;
• how security can be given;
• the consequences of failing to comply; and
• rights of review and appeal.

Directors should treat receiving an NOR as a significant escalation rather than an ordinary reminder letter.

Directors most commonly encounter HMRC security action in relation to:

• VAT;
• PAYE;
• National Insurance contributions;
• CIS deductions; and
• certain other taxes and duties.

The exact rules differ depending on the tax involved.

For PAYE and National Insurance, HMRC can require security from the employer and can also require it from certain individuals connected with the employer, including directors and company officers.

Potentially, for PAYE and National Insurance.

HMRC can require security from:

• the employer;
• a director;
• a company secretary;
• another similar officer;
• a person acting in such a capacity; or
• certain LLP members.

HMRC can also require security from more than one person jointly and severally in appropriate PAYE/NIC cases.

That means directors should not assume a Notice of Requirement always relates only to the company.

This depends on the type of tax.

PAYE and National Insurance

For PAYE and National Insurance security, the recipient will generally have a limited period after receiving the Notice of Requirement to:

• provide the security;
• request Time to Pay for the relevant liability; or
• appeal the notice.

Directors should check the specific deadline stated in the NOR rather than assuming they have unlimited time to respond.

VAT

VAT security requirements operate differently.

HMRC can require security before a business continues making taxable supplies, while the Notice of Requirement will also explain the available review and appeal options.

Because the consequences of continuing taxable activity without providing required security can be serious, directors should deal with the notice quickly.

Yes.

The Notice of Requirement should explain the available review and appeal rights.

Depending on the tax involved, options may include:

• providing further information to HMRC;
• requesting a review;
• challenging the amount or basis of the security; or
• appealing to the tax tribunal.

Because appeal deadlines matter, directors considering a challenge should act quickly.

HMRC normally holds security for a specified period and reviews whether it is still required.

During that period, HMRC will monitor whether:

• tax returns are being submitted;
• future liabilities are being paid;
• compliance has improved; and
• the risk of further non-payment has reduced.

Where the position improves significantly, it may be possible for the amount of security to be reviewed.

In many cases, yes, but you have to move quickly. 

HMRC’s general guidance says that for VAT and several other taxes you can ask for an independent review or appeal to an independent tribunal within 30 days of the date on the Notice of Requirement.

For PAYE and NIC, HMRC says you should contact HMRC within 30 days, explain what you disagree with and why, and if agreement cannot be reached HMRC will tell you about the right to go to an independent tribunal. HMRC’s VAT legislation also contains appeal provisions for security notices.  

A challenge is not about simply saying the demand feels unfair. It normally needs to be based on evidence, for example: 

• HMRC has misunderstood the facts  
• the amount demanded is excessive  
• the company is now compliant  
• the risk assessment is out of date  
• there is a realistic and evidenced plan to deal with arrears  

Not automatically.

HMRC can demand security because it believes tax is at risk of non-payment, but that does not by itself prove the company is insolvent.

However, a substantial security demand can place additional pressure on cash flow.

If the company already has:

• VAT arrears;
• PAYE arrears;
• unpaid Corporation Tax;
• supplier debts;
• enforcement action; or
• repeated failed payment arrangements,

then the security demand may be another indication that the company’s financial position needs urgent review.