by Mala Kapacee
Mala Kapacee of London Tax Network Ltd considers the what, who and why of HMRC Notices of Requirement to provide Security (NoRs), and the possible alternatives.
When HMRC considers there is a risk that future payments of PAYE, VAT or NICs may not be made, the department can issue letters to companies requiring a payment of security in advance of future amounts becoming due.
The notice must specify—
(a) the value of the security;
(b) how the security should be provided,
(c) the date on or before which security is to be given, and
(d) how long the security will be required for.
HMRC will only accept cash or cash equivalents as security in these cases, not assets. Where the NoR has been sent to more than one person, the correspondence should also show the names of every other person from whom security has been requested.
Notices can also be used for taxes that are due and have not been paid and which HMRC believes there is a real risk may remain unpaid.
The legislation governing the issuing of these notices can be found at SI2003/2682/Reg 97M onward for PAYE, Social Security (Contributions) Regs 2001, Sch 4, Part 3B for NICs and VAT Act 1994, Sch11, para 4 for VAT.
For PAYE, the notice can be issued to an employer (corporate entity), an officer of the company (director or company secretary) or anyone holding themselves out to be an officer. Where the employer is an LLP, any member of the LLP can receive a notice.
The initial reason for the issuing of these notices was to combat phoenix companies – where companies would trade, not pay their taxes and then liquidate, causing debts to be written off. New companies would then be incorporated free of the tax debts and resulting in loss of tax to the exchequer.
Post pandemic, companies that are in financial difficulty (and their directors) may be prime targets for these notices as taxes are some of the first payments to be overlooked when businesses have cash flow issues. In part, this is because tax debts are not chased up as quickly and do not tend to have as immediate an impact as (for example) trade creditors refusing to supply the business or raising their prices.
If a notice becomes final but remains unpaid and the business continues to trade, the director(s) of the company have committed a criminal offence and may be subject to criminal prosecution. HMRC can also then take action such as seizing or freezing company assets.
HMRC must give the recipient of the notice at least 30days from the date of receipt of the notice to provide the security. For VAT however, the security must be paid immediately.
Make a request for a payment arrangement after the notice has been served. If HMRC agrees a payment plan, then the notice will be withdrawn. If however no payment arrangement is agreed, the notice will stand and the taxpayer will have at least 31 days from the date HMRC advises the taxpayer of its refusal to the payment arrangement, to provide the security.
An individual receiving the notice can apply for a reduction in value of the security being held (if already paid to HMRC).
Alternatively the taxpayer can appeal against the notice on any requirement in the notice. The appeal can be made on such grounds as:
- the tax is not due
- the figures discussed are incorrect
- the person from whom the security is being required may not have been a relevant person at the time the debts were incurred or at all.
Other grounds can be put forward as appropriate.
The appeal must be made to HMRC in the first instance within the 30 day period. If this is unsuccessful, the appeal can then be notified to Tribunal.
Notices of requirement to provide security are only issued where HMRC considers there is a serious risk of non payment of tax and/or dissipation of assets. Failure to comply with the notice will result in serious consequence, at best the business will cease and at worst, there may be criminal prosecution.
A taxpayer receiving the notice should obtain advice sooner rather than later.
Mala Kapacee is a Chartered Tax Adviser and non-practising Solicitor and accountant. She is Director of London Tax Network Ltd, a Tax Investigations Specialist consultancy.
