Notice of Requirement: What it means and how to respond

HM Revenue & Customs (HMRC) has a range of enforcement tools at its disposal to protect the public purse when it believes there’s a serious risk of non-payment of taxes and duties.

Amongst the most disruptive of these powers is the Notice of Requirement to provide a security payment in respect of PAYE, VAT, or other taxes.

HMRC is increasingly using these powers where a business has a history of late payments or accumulating tax arrears.

What is a Notice of Requirement?

A Notice of Requirement is a formal demand from HMRC requiring a taxpayer to pay a sum of money as security for current and future tax liabilities.

Security can be required for a range of taxes, but most commonly for:

• PAYE and NICs
• VAT

HMRC can use this power where it has reason to believe that a business might not comply with their VAT or PAYE and NIC obligations. This typically occurs where there is a history of non-compliance in the current or a previous business.

When is a security payment required?

Security will typically be demanded where HMRC has identified one or more of the following risk factors:

• A history of non-payment of PAYE or VAT
• Evidence of a business continuing to trade despite tax arrears
• Links to previous businesses that have left unpaid tax liabilities
• High-risk sectors prone to avoidance or phoenix activity (e.g. construction, labour supply chains, hospitality, or retail)
• Insolvency or liquidation of associated businesses

Who is liable to pay the security?

HMRC can require more than one person to give security. Typically, this is the director(s) or other persons in control of the business.

Anyone receiving a Notice of Requirement with be jointly and severally liable to give the full amount of the security.

How is the amount of the security calculated?

For both PAYE and VAT, the amount of the security is calculated based on an estimate of the business’s likely tax liabilities over a given period.

This is typically:

• Four months of VAT liabilities
• Four to six months of PAYE and National Insurance liabilities

However, the amount is not capped and will vary depending on the perceived risk. HMRC may also add an additional buffer where appropriate.

The security can be provided in the form of a cash payment, a bond, or a guarantee from an approved financial institution.

What happens if you do not comply with a Notice of Requirement?

Failure to comply with a Notice of Requirement is a criminal offence.

Continuing to trade without providing the security exposes directors, shadow directors and controlling officers to personal liability and prosecution.

Without proper advice, you risk trading illegally, which can result in fines up to £5,000 per taxable supply and potentially disqualification from acting as a company director.

Are PAYE and VAT security linked?

Although PAYE and VAT are separate tax regimes, HMRC adopts a holistic compliance approach.

If a business presents a risk in one area, such as VAT, HMRC may proactively assess whether the same risk applies to PAYE.

In most cases, Notices of Requirement will be issued covering PAYE and VAT simultaneously.

Can you appeal a Notice of Requirement?

Yes. If a Notice of Requirement has been issued, they can be disputed. The process is slightly different for PAYE and VAT both involve tight deadlines and technical arguments. Further representations can be made to HMRC as part of the appeals process.

In most cases, businesses should seek specialist tax advice early to either avoid the notice being issued in the first place or to negotiate a reduced security amount.

Specialist tax advice is absolutely critical

The Notice of Requirement is one of the most disruptive compliance measures in HMRC’s toolkit as it can effectively stop a business from trading.

Demands for security payments will increasingly be used by HMRC to protect tax at risk of not being paid, especially as HMRC ramps up its focus on increasing revenues post-pandemic and following Budget pressures.

It is vital to understand that once a business has received a Notice of Requirement, they should not be ignored – action must be taken.

Tax experts can negotiate the amount of security, propose alternative payment methods (e.g. bank guarantees), or argue for a reduced figure based on your financial position.

At inTAX, we help businesses navigate these complex and high-stakes situations. Do not wait for the Notice of Requirement to land – get specialist advice at the first sign of trouble.

You can get in touch with our friendly and experienced team on: 0203 675 8122 or email jeremy.johnson@intaxltd.com.

inTAX is a specialist tax disputes firm. We deal with disclosures, investigations, and tax enquiries of all descriptions, including COP9, fraud investigations, VAT fraud, tax avoidance, let property disclosures and tribunal appeals. However, we don’t just deal with the serious end of tax investigations; we are also happy to handle smaller enquiries, disputes and problems that can be equally as worrying for our clients