FAQs on HMRC Security Notices

This is our Frequently Asked Questions on security notices issued by HMRC. HMRC is now more committed than ever to leverage VAT security provisions as well as those relating to PAYE and NICs in order to aid in enforcement actions and the prosecution of directors who fail to comply. Despite the fact that these provisions have long been in existence, they are presently undergoing a notable resurgence in their application and significance and we are conducting a significant number of such cases.

Our tax team made up of specialist tax lawyers including ex-HMRC counsel can assist by providing you with bespoke advice to carefully manage your tax dispute. We can guide you through the complex the HMRC Notice of Requirement to give security (NOR) process. We have experience in negotiating with HMRC to drop Security Notices and of managing appeals against their decisions at all levels (including the leading appeal before the Upper-Tier Tax Tribunal). Members of the team include qualified Tax Solicitors and Tax Barristers whom have vast experience of tax laws and first hand commercial, litigation and advocacy experience.

What is a Security Deposit Letter of Notice?

A notice of requirement to give security, is a HMRC notice sent to a taxpayer, typically a business, informing them that they are required to provide security for future VAT, PAYE or NIC debts to HMRC by a specific deadline. Also known as a HMRC security deposit notice.

The Notice of Requirement to give security (NOR) is a formal written notice issued by HMRC to a taxpayer demanding security by a specified date. If not paid or challenged it can result in criminal charges and prosecution in the Magistrates Court. HMRC typically issues a warning before sending a NOR, unless they perceive a high risk of non-compliance.

A Notice of Requirement (NOR) to give security states:

• The required security amount
• The deadline for payment (at least 30 days from receipt)
• Acceptable payment methods
• Justification for the security demand
• Relevant tax types
• Appeal rights and process

Security can be provided through cash deposits, bank letters of credit, third-party guarantees, or charges over assets. Non-compliance may lead to aggressive collection measures, including asset seizure and insolvency procedures.

Why does HMRC issue Security Notices?

As a result of UK tax law, in particular as set out in HMRC’s internal manual on Securities Guidance, HMRC can require a taxable person to give an amount of monies to be deposited as security against certain taxes (unpaid PAYE, NIC or VAT) which has or will become due in the future. HMRC does this by sending a Notice of Requirement to give Security (NORS).

HMRC must have reasonable grounds to believe that a company or person may not pay their future tax liabilities before issuing a Security Notice. This belief can be based on past behaviour or current financial circumstances. In essence, Security Notices serve as a protective measure for HMRC to secure potential future tax revenue from taxpayers deemed to be at high risk of non-compliance or default.

When does HMRC issue a Notice of Security?

These notices are usually issued to businesses with a history of non-compliance, whether unintentional or for more deliberate reasons. Importantly HMRC must explain the reasons and the taxpayer has 2 stage rights of appeal; either directly to the Tax Tribunal for VAT or via an internal HMRC review (by HMRC) which invariably upholds the HMRC decision. HMRC issues a Security Notice under specific circumstances:

1. History of non-compliance: When a business has a track record of late payments or non-payment of taxes, particularly VAT, PAYE, or National Insurance Contributions.
2. Risk assessment: HMRC must have reasonable grounds to believe that a company or individual may not pay their future tax liabilities.
3. Protection of future revenue: The primary purpose is to safeguard potential future tax revenue from high-risk taxpayers.
4. Previous tax fraud: If the taxpayer has committed tax fraud in the past.
5. Failed businesses: Directors or individuals associated with previously failed businesses that left unpaid tax liabilities may receive a NOR for their new ventures.
6. Ongoing non-compliance: When there’s a pattern of repeated failure to file returns, register for taxes, or establish proper due diligence processes.

Before issuing a NOR, HMRC typically sends a warning letter, unless they believe doing so would increase the risk of non-compliance. The decision to issue a NOR must be authorised by an HMRC officer of at least Higher Officer grade.

Why might a business receive a security deposit letter of notice?

Businesses may receive a security deposit notice from HMRC for several reasons, primarily related to their compliance history with tax obligations. A consistent pattern of late payments, such as failing to pay VAT or neglecting PAYE and National Insurance Contributions, can trigger such a notice. Additionally, financial instability plays a significant role; businesses with a history of insolvency or those currently facing financial difficulties may be viewed as high-risk for future tax liabilities.

Moreover, any involvement in tax fraud or evasion, whether through deliberate actions or suspicious accounting practices, can lead to the issuance of a security deposit notice. HMRC is particularly vigilant regarding directors associated with multiple failed businesses that left unpaid tax debts, as well as individuals who have been disqualified from directorships but are now involved in new ventures.

Certain industry risk factors also contribute to the decision to issue a notice. Businesses operating in high-risk sectors or those that are cash-intensive may attract closer scrutiny due to the increased potential for unreported income. Sudden changes in tax behavior, such as unexpected drops in tax payments or rapid business expansion without adequate tax management, can further raise red flags.

Also, businesses that have previously ignored warnings from HMRC are more likely to receive a security deposit notice. Failing to act on prior advice or continuing non-compliance despite interventions signals to HMRC that stronger measures are necessary. Ultimately, these notices serve as a preventive measure to secure future tax revenue and encourage businesses to enhance their tax compliance practices.

Are there different types of security deposit notices for different tax liabilities?

Yes, there are distinct types of notices. For instance, there are notices related to VAT liabilities and separate notices for PAYE and national insurance debts. Each type of notice has its own set of consequences.

For Value Added Tax (VAT) liabilities, HMRC issues specific notices under Section 161 of the Finance Act 2008. These notices are designed to address concerns related to businesses that have a history of VAT non-compliance or are deemed high-risk for future VAT debts. The requirements and consequences of these notices are tailored to the VAT system, including potential restrictions on VAT registration or deregistration.

In the case of Pay As You Earn (PAYE) and National Insurance Contributions (NICs), HMRC utilises notices under Section 162 of the Finance Act 2008. These notices focus on employers’ obligations regarding income tax and NICs deducted from employees’ wages. The consequences of non-compliance with these notices can include penalties and potential criminal proceedings.

There are also specific notices for other taxes, such as Corporation Tax or Customs Duties, each with its own legal basis and set of procedures. The amount of security required, the timeframe for compliance, and the potential penalties can vary depending on the type of tax liability involved.

What is a Security Notice for VAT?

HMRC issues Notice to give Security in respect of VAT when a business has a history of non-compliance with its VAT payments and continues to trade while owing unpaid taxes. This notice is sent when HMRC believes there is a significant risk of future VAT non-payment based on past behaviour.

The notice requires the business to provide a security deposit, usually in the form of cash or a bank guarantee, to cover potential future VAT liabilities. This security acts as a safeguard for HMRC against the risk of tax loss. The amount required is generally calculated based on the business’s estimated VAT liability for a period of 4-6 months, plus any existing arrears.

HMRC issues these notices under Section 161 of the Finance Act 2008, which grants them the authority to demand security for VAT. The primary aim is to protect future tax revenue while encouraging businesses to improve their tax compliance.

Situations that may trigger a VAT Security Notice include:

1. A consistent pattern of late VAT payments
2. Accumulation of significant VAT arrears
3. Previous VAT-registered businesses with unpaid liabilities
4. Sudden de-registration followed by immediate re-registration under a new entity

Failure to comply with a VAT Security Notice can have serious consequences. These may include restrictions on claiming VAT refunds, inability to bid for contracts requiring VAT compliance, and potential criminal prosecution. In extreme cases, HMRC has the right to prevent the supply of taxable goods until the security payment is made.

It’s crucial for businesses receiving such a notice to take immediate action. They have the right to appeal within 30 days if they believe the notice is unjustified. Grounds for appeal may include demonstrating that previously non-compliant individuals no longer have control over the business or that the nature of the business has significantly changed, making previous VAT estimates inaccurate.

What is a Security Notice for PAYE and NICs?

HMRC issues security notices in respect of PAYE and NICs on the act of non-payment, regardless of business activity. A Security Notice for PAYE (Pay As You Earn) and NICs (National Insurance Contributions) is a formal document issued by HMRC to employers with a history of non-compliance with their tax obligations. These notices are authorised under Section 162 of the Finance Act 2008 and are designed to protect future tax revenue.

HMRC issues these notices when there is a significant risk of non-payment of PAYE and NICs based on past behaviour, regardless of ongoing business activity. The notice requires the employer to provide security, typically in the form of cash or a bank guarantee, to cover potential future liabilities.

Key aspects of PAYE and NICs Security Notices include:

1. Calculation: The amount of security required is usually based on the employer’s estimated PAYE and NICs liability for a period of 4-6 months, plus any existing arrears.
2. Multiple parties: HMRC can require security from more than one person associated with the employer, such as company directors. In such cases, those required to give security are jointly and severally liable.
3. Notice details: The Notice of Requirement (NOR) must specify the amount of security required, the deadline for payment (at least 30 days from receipt), and acceptable payment methods.
4. Appeals: Employers have the right to appeal to the Tax Tribunal against the notice or the amount required. They can also request an internal review by HMRC before proceeding to a Tribunal hearing.
5. Consequences: Failure to comply with a Security Notice is a criminal offence and can result in prosecution. The maximum fine for non-compliance is £5,000 per person required to give security.
6. Duration: HMRC typically specifies how long the security will be required, often up to 24 months.

These notices are part of HMRC’s strategy to ensure tax compliance and protect public funds, when dealing with employers who have a record of late payments or non-payment of PAYE and NICs.

What are the consequences of receiving a security deposit notice?

The consequences of receiving a security deposit notice can vary based on the specific circumstances and the type of notice issued. The NOR generally explains to the person:

• HMRC’s power to require security
• the amount of security HMRC require
• the date on or before which security is to be given – this date must not be earlier than 30 days after the day on which the person receives the NOR
• how long HMRC will hold security
• the names of all the other persons who have been given an NOR requiring them to give security jointly and severally
• the means by which security can be given
• what happens if the recipient fails to provide security
• each and every person’s separate right of appeal.

Generally, the notice implies that the taxpayer is required to provide security to ensure the protection of revenue. Non-compliance with a VAT Security Notice may result in consequences specific to VAT, such as restrictions on the ability to claim VAT refunds, bid for contracts that require VAT compliance, or maintain good standing with HMRC for VAT-related matters.

Ignoring or failing to comply with a VAT Security Notice may lead to penalties, criminal prosecution, fines, and restrictions directly related to VAT. In extreme cases, criminal charges may be filed against the business and its directors.

Our Taxation practice is at the core of the firm. Got a dispute with HMRC? Our tax team is made up of specialist tax lawyers who can assist you to resolve your tax dispute. Our ex-HMRC lawyers will guide you on complex tax legislation to get you the best possible result.

What happens If I ignore the Security Notice?

Ignoring Notice of Security Requirement may lead to HMRC imposing significant penalties, difficulties in maintaining payroll for employees, and potential financial difficulties. The case may be referred to the Crown Prosecution Service (CPS) for a charging decision. If the CPS proceeds, which is usually the case, then the business and its directors may face charges in a magistrate’s court, potentially resulting in fines.

Ignoring a Security Notice from HMRC can have severe consequences for both the business and its directors. The repercussions escalate over time if the notice continues to be disregarded.

1. Penalties and Fines: HMRC can impose significant financial penalties. For VAT-related notices, fines can reach up to £5,000 for each taxable supply made without providing the required security. In some cases, fines may escalate to £20,000 per taxable supply.
2. Criminal Prosecution: If the notice continues to be ignored, HMRC can refer the case to the Crown Prosecution Service (CPS) for a charging decision. This can result in criminal charges against the business and its directors.
3. Court Proceedings: If the CPS proceeds with prosecution, the case will be heard in a magistrate’s court. This can lead to criminal convictions for directors and substantial fines.
4. Personal Liability: Directors may be held personally liable for the unpaid security, potentially facing individual fines of up to £5,000.
5. Operational Difficulties: Non-compliance can create challenges in maintaining payroll for employees and cause broader financial difficulties for the business.
6. Reputational Damage: Criminal proceedings and public records of non-compliance can severely damage the business’s and directors’ reputations.

It’s crucial to address a Security Notice promptly and seek professional legal advice to navigate the situation effectively and avoid these severe consequences.

How can a business avoid receiving a security deposit notice?

To avoid receiving a security deposit notice, a business must ensure that it is consistently meeting its tax obligations and keeping them up-to-date. This includes paying taxes on time and complying with tax regulations.

If you consider you are at risk of getting a security notice book a discounted fixed fee conference with our experienced ex-HMRC tax barrister and solicitor team so we can advise you on your options and the best next steps.

What legal basis allows tax authorities to issue a notice of requirement to give security?

The legal basis for tax authorities to issue a notice of requirement to give security is rooted in specific legislation designed to protect public revenue and ensure tax compliance. In the United Kingdom, this power is primarily derived from the Finance Act 2008, specifically Sections 161 and 162, which grant HMRC the authority to demand security for VAT, PAYE, and National Insurance Contributions respectively.

These provisions were introduced to address the growing concern over tax losses due to non-compliant businesses and individuals. The legislation provides HMRC officers with a broad discretionary power to assess and act upon perceived risks to tax revenue. This discretion is crucial as it allows for a flexible approach to diverse situations that may arise in the complex landscape of business taxation.

When considering whether to issue a notice of requirement to give security, HMRC officers must carefully evaluate the specific circumstances of each case. This evaluation involves analysing the taxpayer’s compliance history, current financial situation, and the potential risk to future tax revenue. The assessment is not merely based on past behaviour but also considers the likelihood of future non-compliance or inability to pay taxes.

The value of the security required is another critical aspect that falls under the discretionary power of HMRC. Officers must determine an amount that is both sufficient to protect the revenue at risk and proportionate to the perceived threat. This calculation typically considers factors such as the business’s turnover, tax liability history, and the duration for which the security is deemed necessary.

It’s important to note that while this power is broad, it is not unlimited. HMRC must exercise this authority reasonably and in accordance with general principles of administrative law. Taxpayers have the right to appeal against both the issuance of the notice and the amount of security demanded, providing a check on potential overreach by the tax authorities.

If you feel your Security notice is not reasonable then our team of professionals can advise you. Our team includes an ex-HMRC counsel who headed up two big 4 accountancy firms national tax litigation practices and our senior partner, a dual-qualified solicitor and barrister both of whom have featured on BBC Panorama.

Is there any recourse for businesses that receive a security deposit notice?

Businesses that receive a security deposit notice may have options to challenge the notice or negotiate the terms of the required security. It’s advisable to seek legal counsel to explore potential courses of action.

For VAT-related security notices, the appeal process is direct and streamlined. Taxpayers have the right to appeal directly to the First-tier Tribunal (Tax Chamber) usually within 30 days of the date of the notice. This immediate access to an independent judicial body allows for a swift resolution and provides an opportunity for the taxpayer to present their case before an impartial adjudicator. The Tribunal has the power to confirm, vary, or set aside HMRC’s decision, offering a comprehensive review of the notice’s validity and proportionality.

In contrast, for PAYE and National Insurance Contributions, the appeal process typically involves an additional step. Initially, taxpayers can request an internal review by HMRC. This review is conducted by a different team within HMRC, separate from those who issued the original notice. While this internal review often upholds HMRC’s original decision, it provides an opportunity for HMRC to reconsider its position and potentially resolve the issue without the need for formal tribunal proceedings. If the taxpayer remains unsatisfied with the outcome of the internal review, they can then proceed to appeal to the First-tier Tribunal.

How can I challenge a security deposit notice?

To challenge a security deposit notice, you initially appeal to the tax authority. If the decision isn’t overturned, you can request an independent review within HMRC within 30 days. If the decision remains unchanged, you can appeal to the First Tier Tribunal Tax Chamber, an independent judicial body.

How can I get more information or legal assistance regarding security deposit notices?

If you need more information or legal assistance related to security deposit notices and taxation matters, it’s recommended to consult with a tax attorney or a qualified legal professional specializing in taxation law. They can provide guidance and support tailored to your specific situation.

Why is it essential to address security deposit notices promptly and with legal assistance?

Seeking advice immediately upon receiving a notice is crucial, as it significantly impacts the chances of success in challenging the notice and avoiding severe consequences. Delaying action may limit the avenues for resolution and could result in a criminal conviction.

Security Notice Solicitors Advice

We have years of experience negotiating with HMRC and handling tax appeals at the Tax Tribunals and in the High Court dealing with contentious tax disputes. We also work extensively with Accountants, Tax Investigation practices and former HMRC Officers to ensure your matter is handled correctly. We have a dedicated team of barristers and solicitors defending HMRC Security Notices including representation at the Magistrates Courts and at the First-tier and Upper-tier Tax Tribunals.

The depth of our combined capabilities allows us to represent clients in a variety of situations, whether advising private or corporate clients during tax audits, pursuing administrative appeals, or litigating tax matters at the Tax Tribunal, Court or in tax appeals. Clients hire us because of our extensive experience in all areas, and especially because of our litigation experience – when necessary, we know when to go to the Tax Tribunal and we know how to litigate against HMRC.

HMRC SECURITY NOTICES – ACT PROMPTLY
There is a limited time to respond to a HMRC Security Notice once it has been served which may be as short as 30 days from the date on the Notice letter. The options for defending against the criminal sanctions for non-compliance become more limited thereafter. You should take therefore obtain specific legal advice on your circumstances quickly.