HMRC Tax Investigation – Notices of Requirement to pay Securities
If you or your business needs assistance in responding to a Notice of Requirement to pay Securities by HM Revenue & Customs (HMRC), the expert team of specialist tax investigation solicitors at JMW is here to help.
Our Business Crime and Regulation team has years of experience dealing with tax investigations and will help you resolve the situation efficiently and effectively, while doing what we can to protect your business and personal interests.
To speak to the specialist tax investigation solicitors at JMW, call 0345 872 6666, or fill out your details using our online enquiry form to request a call back.
What is a Notice of Requirement (NOR)?
A Notice of Requirement to pay Securities requires an employer to pay HMRC a lump sum of money (a security) in advance, if there is a risk they will not pay Pay As You Earn (PAYE) or National Insurance contributions (NICs) which become due. The relevant tax law is set out in Part 4A of the Income Tax (Pay As You Earn) Regulations 2003 and Part 3B of Schedule 4 to the Social Security (Contributions) Regulations 2001.
In the same way, HMRC can require a taxable person to pay an amount of security if there is a serious risk that they will not pay VAT which is or becomes due. The relevant tax law is set out in paragraph 4(2)(a) of Schedule 11 to the VAT Act 1994.
HMRC’s Internal Manual on NORs sets out the requirements for HMRC to impose a NOR.
Will I receive a warning from HMRC prior to receiving a NOR?
Not necessarily.
Normally, a warning letter will be sent in advance, warning the person that HMRC may require security. However, if HMRC believe that sending a warning letter will increase the risk that VAT, PAYE or NICs will not be paid, they may send or give a notice of requirement without warning.
What information does the NOR contain?
The accompanying cover letter will provide information explaining why HMRC need the security, how they arrived at this amount, and the right to request time to pay it, as well as information about joint and severable liability.
The Notice of Requirement itself will explain:
- HMRC’s power to require security,
- The amount of security they require,
- The date on or before security is to be given,
- How long HMRC will hold the 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 they fail to provide security,
- The person’s right of appeal.
The NOR will also be accompanied by a factsheet. You can see examples of these below:
How much time do I have to pay the security?
VAT securities must be paid immediately by law, but HMRC will allow a reasonable time for payment.
Securities for PAYE/NICs must be paid by the date shown on the NOR. This date will not be earlier than 30 days after the day on which the notice is received.
Can I request additional time to pay the security?
Yes. HMRC’s internal manual on time to pay requests states that the employer can request time to pay their VAT and PAYE/NICs liabilities, provided the request is submitted before the date by which HMRC originally stated they required the security.
Requests should be made in writing and will be considered by the Debt Management and Banking team (DMB).
If DMB accept the request and grant additional time to pay, they will notify you.
If DMB do not accept the request for time to pay, they will tell you and you will be allowed a further 31 days to either provide security or appeal against the NOR if you haven’t appealed already. There is no right of appeal against the time to pay decision, so any right of appeal must be made against the request for security itself.
What happens if I don’t pay a security for VAT?
It is a criminal offence to continue to make or receive taxable supplies without giving the security shown on a notice of requirement. HMRC can prosecute if taxable supplies continue to be made without giving the security in full.
In the event of a successful prosecution, a fine of up to £20,000 may have to be paid for each taxable supply made without giving the security.
Each individual involved in a business that continues to make or receive taxable supplies without giving the security may be personally prosecuted. Individuals may also be personally responsible for paying any fines and compensation awarded by the court.
To avoid prosecution, the taxable person must give the security.
What happens if I don’t pay a security for PAYE and NICs
It is the employer who is liable to pay security for PAYE and NICs.
If the employer is a limited company or a limited liability partnership (LLP), security may be required from either one or more of the company directors or partners, or any person who controls the company or partnership and has the ability to influence whether the PAYE and NICs are paid. If more than one person is in a position to influence the payment of PAYE and National Insurance contributions, each of those people will be legally responsible for giving the whole of the security. This is called being jointly and severally liable.
It is a criminal offence not to give the PAYE and NIC’s security shown on a notice of requirement. HMRC may prosecute if the security is not paid in full.
In the event of a successful prosecution, a fine may have to be paid. The value of the fine will be set by the court and has no limit.
To avoid prosecution, the employer must give security.
Can I apply for a reduction in the security?
A person who has given security for PAYE and NICs can apply for the value of the security to be reduced, if circumstances have changed since the security was given in that:
- The person is suffering hardship,
- The person is no longer the employer in the business,
- There has been a significant reduction in the workforce, or
- The person is no longer an employer at all.
If this application is successful, HMRC may return some or all of the security.
There is no method to reduce the value of the security for VAT, other than the appeal process detailed below.
How are securities calculated?
VAT securities are calculated based on:
- The amount of VAT paid or due to be paid by the business for a 4-month (for businesses with monthly returns) or 6-month (for businesses with quarterly returns) period, plus
- An amount equal to any arrears of VAT from the current business. This does not affect the arrears due and HMRC will simultaneously continue to pursue payment of these.
PAYE and NIC securities are calculated based on:
- The amount of PAYE and NICs paid or due to be paid by you for a 4-month period, plus
- An amount equal to any current arrears of PAYE and NICs due from you. This does not affect the arrears due and HMRC will simultaneously continue to pursue payment.
When will I get the security back?
HMRC will normally hold VAT security for at least 12 months for a business on monthly returns and 24 months for a business on quarterly returns. They will normally hold PAYE/NIC security for 24 months, while they use this time to monitor the tax affairs of the business.
They will return the security when they consider there is no longer a risk.
HMRC may use the security to pay any VAT, PAYE or NICs that are due, as well as other debts with HMRC.
Can I appeal a notice?
Yes.
Requests to review the decision should be made within 30 days of the date of the notice of requirement. You should request a review if you think there are facts that have not been properly considered, or if you can provide more information that you think will alter the view.
Appeals can also be made to an independent tribunal within 30 days of the date of the NOR, or 30 days of the review decision.
If you have appealed to an independent tribunal against a notice of requirement, and you continue to make or receive taxable supplies without giving the security, you may still be prosecuted. However, to allow time for your appeal to be heard, HMRC may agree to wait for the tribunal’s decision before starting or continuing any prosecution action.
