Director Advice: HMRC Security Bonds and potential insolvency

When HMRC believe they may incur a loss of revenue with regard to taxes and duties, they can issue a demand for a company to pay a security bond, which effectively mitigates this risk.

Security bonds will typically be requested when HMRC believe company directors have deliberately failed to pay in the past, or when they suspect that a company is insolvent. HMRC security bonds can be a particular issue for new companies emerging from a pre pack administration, often known as ‘phoenix’ companies, where directors have liquidated an old company with debts.

How do HMRC demand a security bond?

A notice of requirement (NOR), is initially issued by HMRC. This is a formal document setting out the amount of security deposit required, and time limit for paying. You must be allowed at least 30 days from the date of receipt, in which to pay the bond.

Apart from the timescale and security amount, the notice of requirement will also specify:

Problems for insolvent companies

If your company is approaching insolvency, or is already insolvent, the requirement to pay a security bond can derail plans to restructure, or trade your way out of difficulty using certain insolvency processes, such as a Company Voluntary Arrangement (CVA).

The requirement to pay a large sum of cash may also limit the insolvency procedures available, and for ‘phoenix’ companies it creates serious issues regarding their ability to trade normally.

Bond amounts vary with each case, and are calculated by HMRC according to their perceived level of risk based on a number of factors including previous history of payment.

It’s a criminal offence to fail to pay a security bond, and HMRC are likely to take you to court. You must cease trading if you cannot pay, otherwise you may be fined up to £5,000 for every invoice issued following the security bond payment deadline.

Are there grounds for appeal?

HMRC must thoroughly assess their risk prior to issuing a notice of requirement, and there may be grounds for appeal if you feel the requirement is unjustified. You may be able to appeal against the demand if your new company’s tax and VAT payments are up-to-date, for example, and there are clear grounds to challenge their decision.

If your company became insolvent due to reasons beyond your control, such as the insolvency of a key supplier or customer, this may also provide legitimate grounds for appeal.

For professional advice and guidance if you’ve received a notice of requirement, call our team of licensed insolvency practitioners at Real Business Rescue. We’ll ensure you understand your rights, and advise on how to proceed. Contact one of the team for a free same-day consultation -with 75 UK offices.