HMRC help: VAT bond or notice of requirement for VAT securities

What is a VAT bond? If HMRC deems that your business is at serious risk of not paying VAT as it becomes due, it can invoke Schedule 11 of the VAT Act 1994. This requires you to make an advance VAT payment of either 4 or 6 months of estimated VAT, which will be held as a bond for up to 12 months. If you receive a VAT bond request or a ‘notice of requirement’ for securities at risk, your business is legally obliged to comply. If you fail to comply, as director, you can be held personally, criminally liable. So here we explain VAT bonds in more detail, and offer some practical advice for dealing with them.


HMRC VAT bond: What you need to know

When is a VAT bond issued?

Historically, if your business has been through more than one liquidation then it is at higher risk of receiving notice to pay a VAT bond from HMRC. However, over the past year, we have seen an increase in notices being issued to some businesses that have not previously liquidated, but are consistently behind with VAT payments.

Some of the issues these businesses have in common are:

  • Poor communication with HMRC
  • Continually late VAT returns
  • Increasing arrears over a protracted timescale
  • Cash business

What is the effect of a VAT bond notice?

If you receive a notice requiring your business to pay a VAT bond, don’t ignore it. Once HMRC issues the notice, your business is legally obliged to comply immediately.

  • If your business normally submits monthly returns, you’ll be required to pay 4 months estimated VAT as a bond.
  • If your business submits quarterly returns, you’ll be required to pay 6 months estimated VAT.

 

The requirement is effective immediately, but HMRC usually allows a few weeks to implement. The normal route for payment is into a joint account held in your business and HMRC’s name, which HMRC has control of.

You must also maintain your usual tax payments and returns on time. As long as you do so, your bond will be returned to you after 12 months (if you are on monthly VAT returns), or 24 months (if you are on quarterly VAT returns).

Criminal liability for non-compliance with the bond notice

If you don’t comply with the notice and continue to trade, as a director or sole trader, you can be held personally criminally liable. That means a criminal record, and a hefty maximum £5,000 fine levied against you personally for every VAT-able sale made.

What should I do if my business receives a VAT bond notice?

  • Firstly, if your business is in a position to pay the bond, and currently files quarterly VAT returns, consider switching to monthly returns. That way you can get the benefit of only paying a 4 month bond (as opposed to 6), and having the bond held for 12 months (as opposed to 24).
  • File all your VAT returns! If you have any VAT returns outstanding, make sure they are filed. HMRC is unlikely to look favourably on negotiations if you don’t have your finances in order.
  • If you can’t pay, speak with HMRC and try to reach a deal. Whilst you are negotiating, you will normally be given some leeway on compliance timescales, and hopefully if it supports your proposition, HMRC will remove the bond requirement.

How can Business Rescue Expert help with a VAT bond notice?

We have years of experience in working with HMRC to resolve disputes.

If you need to negotiate a repayment of your debt, we can help you put forward an informal repayment plan, or Time to Pay ArrangementWe are also licensed insolvency practitioners, so where negotiation isn’t a strong option, we can take you through the liquidation process.

If you need some tailored advice, contact us and talk to one of our business rescue experts directly. Initial consultations are free. 

 

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