Receiving a Notice of Requirement to Provide Security from HM Revenue & Customs (HMRC) is a serious matter for any business.

These notices are issued where HMRC believes there is a significant risk that a company will not pay its future tax liabilities. The notice requires the business to provide a financial security deposit, usually relating to VAT or PAYE obligations.

For many companies already struggling financially, the demand for a security deposit can be difficult or impossible to meet. Some directors may consider ignoring the notice or continuing to trade without paying the security.

However, doing so can have serious legal and financial consequences.

Understanding what happens if you ignore an HMRC security notice is essential so you can take the right steps to protect your company and your position as a director.

What Is an HMRC Security Notice?

A security notice, formally known as a Notice of Requirement, is a legal demand requiring a business to provide a deposit to HMRC.

The deposit is intended to protect the public revenue where HMRC believes a company may fail to pay future taxes.

Security notices most commonly relate to:

  • VAT liabilities
  • PAYE and National Insurance contributions

HMRC normally issues these notices where there is a history of unpaid tax debts, repeated late payments or where directors have previously been involved in companies with outstanding tax liabilities.

Why HMRC Demands Security Deposits

HMRC uses security notices as a way of reducing the risk that future tax liabilities will go unpaid.

The department may issue a notice if it believes there is a serious risk to the public revenue.

This may arise where:

  • a business has built up significant VAT or PAYE arrears
  • the company has repeatedly paid tax liabilities late
  • directors have previously been involved in insolvent companies with unpaid taxes
  • a new company appears to be continuing the trade of a failed business

In these situations, HMRC may require the company to pay a security deposit covering several months of expected tax liabilities.

Can a Business Continue Trading Without Paying the Security?

In most cases, no.

If a business continues to trade without providing the required security deposit, those responsible for the business may commit a criminal offence.

This means directors, company officers or managers who knowingly allow the company to continue trading without providing the security could face personal penalties.

Because of this risk, ignoring a Notice of Requirement is rarely advisable.

HMRC Enforcement Action After a Security Notice

If the required deposit is not paid, HMRC may take further enforcement action.

This can escalate quickly depending on the level of tax debt and the company’s compliance history.

HMRC enforcement may include:

  • issuing financial penalties
  • pursuing tax debts through collection procedures
  • beginning legal action to close the company

One of the most serious actions HMRC can take is issuing a winding up petition, which asks the court to force the company into compulsory liquidation.

You can read more about this process here:
https://www.businessrescueexpert.co.uk/winding-up-petition/

Tribunal Cases Show HMRC’s Powers Are Strong

Tax tribunal decisions show that the courts frequently support HMRC when security notices are challenged.

For example, in FMC (Fabrics Maintenance Contractors) Ltd v HMRC, the tribunal upheld a security demand of more than £100,000 after reviewing the company’s history of unpaid VAT.

In Swann v HMRC, the tribunal also supported HMRC’s decision to require more than £80,000 in PAYE security after repeated payment failures.

These cases demonstrate that tribunals are generally willing to uphold security notices where there is evidence that tax liabilities may not be paid.

Why Ignoring an HMRC Security Notice Is Risky

Ignoring a Notice of Requirement can quickly make a difficult situation worse.

If the company continues trading without paying the security deposit, directors may face both financial penalties and potential criminal liability.

At the same time, the company’s underlying financial problems often remain unresolved. Existing tax debts may continue to grow while the company also generates new liabilities.

This can lead to further creditor pressure and increase the likelihood that HMRC will take enforcement action.

In many cases, ignoring the notice simply delays the inevitable and may ultimately lead to compulsory liquidation through the courts.

When an HMRC Security Notice Indicates Insolvency

For many companies, receiving a security notice is a sign that the business may already be insolvent or close to insolvency.

A company is considered insolvent if it cannot pay its debts as they fall due or if its liabilities exceed its assets.

If the business cannot afford both the security deposit and its existing debts, directors should carefully assess the company’s financial position.

Continuing to trade while insolvent can expose directors to potential claims if creditor losses increase.

You can learn more about director responsibilities when a company becomes insolvent here:
https://www.businessrescueexpert.co.uk/directors-duties-when-insolvent/

Can Liquidation Be a Solution?

If a company cannot afford the security deposit or repay its tax debts, liquidation may be the most appropriate solution.

Liquidation allows an insolvent company to close in an orderly way while dealing with its outstanding liabilities.

By entering liquidation, the company stops trading and creditor pressure is halted. A licensed insolvency practitioner is appointed to take control of the company’s affairs and distribute any available assets to creditors.

In many cases, this provides a more controlled outcome than waiting for HMRC to force the company into compulsory liquidation.

You can read more about liquidating a company with HMRC tax debts here:
https://www.businessrescueexpert.co.uk/creditors-voluntary-liquidation/

Why Early Advice Can Protect Directors

When HMRC issues a security notice, it is usually because the department believes there is a significant risk that taxes will not be paid.

Seeking professional advice at an early stage can help directors understand the available options and avoid making decisions that could increase personal risk.

In some situations it may be possible to restructure the business or negotiate with HMRC. In others, voluntary liquidation may provide the most appropriate way to deal with the company’s debts and close the business in a controlled manner.

More information about dealing with company insolvency can be found here:
https://www.businessrescueexpert.co.uk/company-insolvency/

Speak to an Insolvency Expert

If your company has received an HMRC Notice of Requirement and you are unsure how to respond, it is important to seek advice as soon as possible.

Security notices are often issued where HMRC believes a business is at risk of failing to pay future taxes. Ignoring the notice can lead to serious legal consequences and may increase the likelihood of enforcement action.

Speaking with an insolvency professional can help you understand your options, including whether liquidation may be the safest way to resolve the company’s debts.

You can contact the Business Rescue Expert team for confidential advice here:
https://www.businessrescueexpert.co.uk/contact/

Frequently Asked Questions

What happens if you ignore an HMRC Notice of Requirement?

If a company ignores a Notice of Requirement to provide security and continues trading, directors or company officers may commit a criminal offence and HMRC may take enforcement action.

Can HMRC close a company for unpaid tax?

Yes. HMRC can issue a winding up petition to force a company into compulsory liquidation if tax debts remain unpaid.

Can a company trade without paying the HMRC security deposit?

No. Continuing to trade without providing the required security may expose directors to penalties or prosecution.

What should directors do if they cannot pay an HMRC security demand?

Directors should seek professional advice immediately. If the company cannot pay the deposit or its tax debts, liquidation may be the most appropriate option.