If HMRC think there’s a risk a business won’t pay its VAT bill, they may ask for a bond or deposit payment known as a VAT security to help minimise the chance of late or non-payment.

These notices are sent to a company director’s home address as well as to the company, so you’ll be personally liable for the amount. We’re emphasising that point because it’s a pretty rare occurrence in a limited company.

Why have HMRC requested a VAT security bond?

There are several reasons why a business or trader may receive a VAT security request. It could be that you have current or past VAT arrears, or have had issues with paying your bill on time in the past. Requests are sometimes issued if HMRC suspect that your company is insolvent.

What is a VAT Notice of Requirement?

HMRC will normally issue a warning letter known as a ‘Notice of Requirement’ to tell you about the VAT you owe, although this isn’t always the case. If they consider that sending a warning letter increases the likelihood of not being paid, they won’t send one.

If one is sent out, the Notice of Requirement (or NOR for short) will explain:

• The amount you need to pay as a security bond
• The deadline for payment
• How long HMRC will hold the VAT security bond
• How to pay it

How are VAT securities calculated?

The security is usually equivalent to the amount of VAT due to be paid to HMRC for a set period, typically four or six months, depending on how often you submit a VAT return for the VAT scheme you’re on. An amount will be added for any arrears currently outstanding for the business.

The amount of security they request you to pay won’t be any higher than the amount of credit being considered. HMRC will use the information they have at that time to calculate the amount of security.

Can I appeal a Notice of Requirement?

Yes, you can request an independent review or appeal a Notice of Requirement at a tribunal, as long as you request this within 30 days of receiving the letter. Just be aware that your appeal will be considered based on whether or not HMRC’s request is ‘reasonable’, so it’s a very good idea to get some professional support to back you up.

What happens if I don’t pay?

Failure to pay is treated as a criminal offence, so there’s a good chance HMRC will take you to court. The outcome of this can be serious, with penalties of up to £20,000 for each transaction which goes through the business after the deadline. We’ll say that again. £20,000 per transaction. Ouch.

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