A security is either a bond or a cash amount that can be demanded from a business, or its director, which HMRC considers to present a risk of non-payment. A security can be demanded for Insurance Premium Tax, environmental taxes, VAT and PAYE. Results have demonstrated that demands for a security are effective in about 50 per cent of the cases.
A Notice of Requirement to give security is served on a taxable person, which can be either a VAT-registered business or person. Once a taxable person is recognised as being at risk of non-payment of VAT, a warning letter will be issued to tell that person or business that a security may be demanded. However, in some cases, a Notice of Requirement for security may be issued without a warning letter. An independent review will be offered by the case officer.
Reasons for requiring a security
If a person or business has demonstrated non-compliance with VAT requirements, either in a previous business or their current role, a security may be required. If HMRC has sufficient reason to believe that the taxable person won’t be compliant, this will result in a security being required.
Employers who have refused to settle their PAYE and NIC debts with HMRC will be issued with a Notice of Requirement to give a security. This will also be issued to those employers who deliberately build PAYE debts and don’t respond to the efforts of HMRC to contact them, and also those actively involved in ‘phoenixism’. This is the act of running up PAYE debts and then making the company insolvent before setting up another company the next day, continuing to trade. A letter warning of a security will be issued to the employer. Once the employer has contacted HMRC, the case officer will issue a letter stating the ‘view of the matter’. Once this has been issued, the officer will offer an independent review of the decision to issue a Notice of Requirement to give a security.
How a security is calculated
The security will be put together according to the severity and level of risk associated with each case. However, a security for VAT is calculated according to a formula agreed by tribunals. It will be based on the amount of VAT outstanding, plus an amount based on the amount of VAT that would be due over a four or six-month period, based on whether the business files quarterly or monthly returns.
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