A business has been struggling with cash flow and has had issues paying their PAYE liabilities on time. Reeling from the effects of the coronavirus outbreak, HMRC is now demanding a security payment. What does this mean for the business?

HMRC powers

HMRC is charged with protecting the public revenue, and it has special powers in circumstances where it considers there is a significant risk that a taxpayer will fail to make a payment due. It can issue a Notice of Requirement (NOR) in respect of a wide range of taxes including VAT, PAYE (including NI), corporation tax and construction industry scheme payments. For a full list of the taxes covered, see Follow up.

Clients must pay any amount demanded as security within 30 days for payroll taxes. For VAT, security is due “immediately”. But there should usually be a warning letter first. Plus, unless there are exceptional circumstances, there should be an agreed timeframe. HMRC says “we’ll allow what we consider to be a reasonable amount of time” .

What is a security?

A security is either a payment that will be held in a special account by HMRC, or the purchase of a performance bond. The exact amount depends on the tax the security is in respect of. For example, for PAYE it will be based on four months of liability. It will be six months for VAT in most cases, and twelve for corporation tax. This will be held for a fixed period then reviewed.

Pro advice. The security will not reduce any arrears, nor can it be used to offset any liability for the holding period. It is merely a hedge against non-payment.

Who is at risk?

Any client where HMRC thinks revenue is at risk. So if there is a poor payment or compliance history, especially if your client has previously been involved in an insolvent business. For VAT, it could even be trading from premises earlier occupied by an (unconnected) insolvent business especially one in a similar line of trade.

Can my client refuse?

The consequences of non-compliance can be extremely serious. For VAT, failure to pay the security makes continuing to trade a criminal offence. For PAYE and NI, the employer and anyone receiving the NOR is liable to prosecution and a potentially unlimited fine. In the case of companies, this usually includes directors. If your client is struggling with cash flow due to the coronavirus, it might be worth an initial chat with the officer to see if the circumstances might be taken into consideration.

Pro advice. This is more likely to succeed if your client has brought their compliance affairs up to date and can demonstrate a commitment to keeping them as such. Ask for an internal review.

If HMRC won’t budge, your client’s only recourse is to the tax tribunal (see Follow up ), though inability to pay is unlikely to garner much sympathy on its own. Do not delay in making the application. Make sure you apply immediately following HMRC’s internal review, and within 30 days in all cases. The tribunals are increasingly clamping down on poor procedure, and may not accept a late appeal, even if it means severe consequences for the directors.

Your client will need to make a payment by the specified date or risk committing a criminal offence. Ask for an internal review if compliance affairs have been brought up to date, especially if your client is affected by coronavirus. If it won’t change its decision, your client’s only option is the tribunal so get an appeal in promptly.

The next step

Apply to the tax tribunal
HMRC security series

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.