Sheep and guy walking off bridge.

A Notice of Requirement and VAT Security

09 December 2013

A former TV chef was recently fined £10,000 for his failure to comply with a Notice of Requirement (NOR) to give a VAT security (

HM Revenue & Customs (HMRC) has shown an increased readiness to use such Notices, so perhaps this presents a timely opportunity to remind people of the circumstances when they are applied and their consequences.


Paragraph 4(2)(a) of Schedule 11 to the VAT Act 1994 permits HMRC to require a taxable person to pay an amount as security when it believes there is a serious risk that VAT will not be paid. This situation can arise where a current or previous business has failed to meet its VAT obligations or where HMRC believes such a risk might arise in the future.

Where HMRC has identified this potential risk, it will issue the taxpayer with a formal NOR usually, but not always, after an initial warning letter. The amount of the security is calculated proportionately to the perceived risk and is normally the estimated VAT liability for 6 months (quarterly returns) or 4 months (monthly returns), plus any existing arrears from the current or previous business. HMRC can also insist on a change from quarterly to monthly returns if it believes compliance will be improved.

Forms of security

HMRC will only accept the following forms of security:

  • electronic payment to a specified HMRC bank account;
  • a cheque or banker’s draft;
  • a guarantee in the form of a performance bond authorised and approved by a financial institution;
  • payment into a bank account held in the joint names of the taxable person and HMRC.

Action on receipt

Immediate action by the taxpayer is expected following receipt of a NOR although HMRC should allow a reasonable time to put any required arrangements in place.

If the NOR is to be disputed, an appeal must be lodged within 30 days of the date of the Notice, either for an HMRC internal review or directly to the Tribunal. The dispute may be against the decision to issue the Notice or against the amount of security calculated. If there are grounds for appeal for either of these factors, our recommendation would be to write to HMRC in the first instance giving full reasons why it is believed the decision or the amounts are incorrect.

Often HMRC’s decision is based on assumptions that can be readily disproven, such as:

  • The personnel involved with a previous business that had a poor compliance history have a controlling influence in a new business. It may be the case that the person who gave HMRC cause for concern in the previous business has no involvement or management influence/decision-making responsibilities in the new business. If this can be satisfactorily demonstrated, HMRC may accept the risk no longer exists and withdraw the Notice.
  • No returns have been submitted for the new business, so the estimated security amount is based on either the sales levels of the previous business or estimated turnover reported on the application to register a new business for VAT. The fundamental nature of the business may have changed which will result in significantly lower liabilities than the previous business or there may be higher taxable direct costs or overheads resulting in higher input tax levels etc. If lower anticipated VAT liabilities can be suitably demonstrated, HMRC may withdraw the Notice or reduce the amount of security demanded based on the reduced risk.


One of the main conditions of imposing a NOR is that the business cannot continue to trade until the matter is resolved and it is a criminal offence to do so, as the TV chef found out to his cost. Prosecutions can be very costly affairs in these circumstances because the financial penalties can be very harsh – up to £5,000 per transaction if trading continues without the payment of the security.

It is imperative that action is taken immediately if one of your clients receives a NOR to give security. A recent case we had at Abbey Tax was referred to us very quickly and we managed to have the Notice withdrawn within a matter of days, once the true circumstances of the change of business were brought to HMRC’s attention.

The Abbey Tax Blog can be viewed here

Author: Mark Burke, VAT Manager on the ReSource Tax and VAT Consultancy Team

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