Deferred VAT payments? HMRC may request VAT Security

HMRC has recently updated their VAT security notice since COVID-19 started as many businesses will be deferring their VAT liabilities until 31 March 2021. HMRC can ask a business to pay a cash deposit or bond if they think there is a risk you will not pay your tax or duty on time. They call this a ‘security’. If you do not pay your bill HMRC can use the security to settle it.

HMRC might send or give a notice of requirement to a business if:

  • in their previous or current business, they have failed to comply with their VAT obligations
  • HMRC has reason to believe that the business might fail to comply with their VAT obligations

Normally HMRC will send a letter warning the business that they might need to provide security towards their VAT liabilities. However, if HMRC believes that sending a warning letter will increase the risk that VAT will not be paid, HMRC may send or give a notice of requirement without warning.

If HMRC has sent or given you a notice of requirement and you continue to make taxable supplies without giving the security in full, HMRC may prosecute you. In the event of a successful prosecution, you may have to pay a fine of up to £20,000 for each taxable supply you make without giving the security. This includes supplies made between members of a group registration.

If you are involved in a business that continues to make or receive taxable supplies without giving the security, HMRC may prosecute each individual involved in that business. You may also be personally responsible for paying any fines and compensation awarded by the court.

HMRC calculates the amount of security using a formula that has been approved by independent tribunals. That formula is based on:

  • the amount of VAT paid or due to be paid by the business for a 4-month (if on monthly VAT returns) or 6-month (If on quarterly VAT return) period plus
  • an amount equal to any arrears of VAT from the current business

HMRC normally hold security for VAT for at least 12 months for a business on monthly returns and 24 months for a business on quarterly returns.

Please feel free to contact Naveen Sahney, (Author) VAT + Custom Duties Adviser nsahney@garbutt-elliott.co.uk if you have any queries.