One of the weapons in HMRC’s arsenal is the ability to issue an organisation with a Notice of Requirement for VAT security where it believes there is an increased risk VAT will go unpaid. This is likely to be the case where a current business or previous business connected to the same individuals has failed to meet its VAT obligations. If the notice is ignored and the business keeps making or receiving taxable supplies of goods or services without giving the security, HMRC can prosecute, and a court can fine the business on conviction.
Supplying Taxable Goods Without Giving Security
Immediate action is required by the company on receipt of a Notice of Requirement (NOR). If the business disagrees with the requirement, it can ask HMRC for a review or appeal to the tax tribunal, normally within 30 days of the date of the notice. A late appeal needs the tribunal’s permission. Once HMRC has served the notice, each taxable supply of goods or services that the business makes or receives without giving the security is a criminal offence. An appeal does not lift the requirement: HMRC can still prosecute, although it may agree in writing to wait for the tribunal’s decision. On conviction in England and Wales, the court can fine up to £20,000 for each supply made or received without the security (up to £5,000 in Scotland and Northern Ireland).
Clearly, with the prospect of such substantial fines, it is essential you take action as soon as you receive a Notice of Requirement to give security.
Grounds for Appeal
The decision by HMRC to issue a Notice of Requirement will usually be based on two factors, both of which can be disputed.
- A Notice of Requirement may be issued if a previous business you were involved with, or individuals connected to a previous business you were involved with, had a poor compliance history. However, if you can prove that those individuals do not have a controlling influence on the new business, you may be able to dispute the requirement to pay security.
- HMRC normally works out the security as the VAT it estimates the business will owe over four months (if it makes monthly returns) or six months (if it makes quarterly returns), plus any VAT arrears the current business already owes. If the new business has not yet sent any VAT returns, HMRC often bases these estimates on the previous business’s figures. This may not be applicable because the nature of the business may have intrinsically changed, making the request for VAT prepayment inaccurate.
You must act now
Whether you choose to appeal the decision or pay the requested security, you must act IMMEDIATELY. Continuing to make or receive taxable supplies without giving the VAT security is a criminal offence. On conviction in England and Wales, the court can fine up to £20,000 for each supply made or received without the security. For expert assistance, please contact 0208 444 3400 today for an immediate, confidential and no-obligation advice.