PAYE and VAT security notices

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A PAYE or VAT security notice requires a business to pay a security deposit to HMRC before continuing to trade. HMRC issues these notices where it believes there is a serious risk that future tax will not be paid. Receiving a security notice is a significant event for any business. Understanding your obligations and the options available is vital to protect the company and its directors.

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At a glance

HMRC issues security notices for PAYE or VAT where it considers there is a high risk of non payment. The notice requires a security deposit that must be paid before trading continues. Failure to pay a VAT security deposit can be a criminal offence. We help businesses understand the notice, challenge it where appropriate and negotiate outcomes that allow trading to continue.

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What is a PAYE or VAT security notice?

A security notice is a statutory demand issued by HMRC requiring a business to pay a deposit against future PAYE or VAT liabilities. HMRC uses these notices where it believes the business presents a risk of continued non compliance. The security can be required as a single payment or as a series of instalments.

For VAT, trading without paying the security deposit can be a criminal offence under the Value Added Tax Act 1994. For PAYE, HMRC may pursue enforcement action, including penalties and potential winding up proceedings, if the security is not paid.

Summary: A security notice requires a deposit that must be paid before the business is permitted to continue trading.

Why has HMRC issued a security notice to my business?

HMRC typically issues security notices where there is a history of late or missed payments, repeated defaults or a pattern of non compliance. Common triggers include:

• unpaid VAT or PAYE liabilities
• failed time to pay arrangements
• missing returns
• concerns about the business’s financial stability

HMRC uses the notice to protect future revenue where it believes there is a real risk that upcoming liabilities will not be paid.

Summary: HMRC issues security notices in response to non compliance or concerns about future tax payments.

How is the HMRC security deposit calculated?

The security deposit is calculated based on the business’s expected VAT or PAYE liabilities over a set period. HMRC may assess average liabilities, seasonal trends and compliance history to determine the amount. The calculation is intended to ensure HMRC is protected against future defaults.

The deposit can be substantial. It must be paid in full or by agreed instalments before trading can continue lawfully.

Summary: The deposit reflects projected tax liabilities and can be significant depending on trading levels.

Do you have to pay a security notice to continue trading?

For VAT, it is an offence to trade without paying the required security deposit. The offence is strict liability, meaning a business can be prosecuted even if the failure to pay was unintentional. HMRC may pass cases to its criminal investigation team in serious situations.

For PAYE, failing to pay the security deposit may result in further enforcement action. This can include penalties, recovery action or an application to wind up the company.

Summary: Paying the security deposit is required to continue trading. Failure to do so carries serious consequences.

What happens if you do not pay a PAYE or VAT security deposit?

If the security deposit is not paid, HMRC may begin enforcement action. For VAT, this can include prosecution. For PAYE, HMRC may issue penalties or take steps to recover the debt. In some cases, HMRC may apply for a winding up petition on the basis that the company poses an ongoing compliance risk.

A failure to engage with HMRC will make resolution much more difficult and may put the company and its directors at risk.

Summary: Non payment can lead to criminal proceedings for VAT and significant enforcement action for PAYE.

Can you challenge or appeal an HMRC security notice?

You can challenge a security notice if you believe it has been issued incorrectly or if the amount assessed is unreasonable. HMRC provides for internal review of security notices, and a challenge must be based on evidence and clear grounds. These may include errors in the calculation, incorrect compliance history or misunderstandings about the business’s financial position.

Challenges must be raised promptly. Delays reduce the chances of success and may lead to enforcement before the challenge is considered.

Summary: Security notices can be challenged, but any challenge must be evidence based and submitted quickly.

Can you negotiate with HMRC to reduce or defer the deposit?

HMRC may agree to reduce the deposit or allow instalment payments if the business can show that full payment would cause financial difficulty. HMRC will expect detailed financial evidence and a history of cooperation. It may also require the business to file returns on time for a period before agreeing to reduce the deposit.

Negotiation is more effective when the business engages early and provides clear information.

Summary: Negotiation is possible, but HMRC will only agree if the business can demonstrate affordability and improved compliance.

What should you do if your business cannot afford the security deposit?

If the business cannot afford the deposit, it may be necessary to explore time to pay arrangements, short term funding, refinancing or formal restructuring options. Directors should take advice on their duties and the risks of trading without paying the required deposit.

It is important to act quickly. Inaction increases the risk of prosecution or compulsory liquidation.

Summary: If you cannot afford the deposit, you must seek advice immediately and explore alternative ways to meet the requirement.

How does FWJ help businesses facing PAYE or VAT security notices?

We advise on whether the notice can be challenged, help prepare submissions to HMRC and negotiate repayment terms where appropriate. We also guide directors on their duties and provide practical steps to keep the business trading legally.

Summary: FWJ provides clear and practical advice to help businesses respond to security notices and protect ongoing trading.

Our specialist PAYE and VAT security notice team

Our firm has a brilliant range of experience on tax related claims.

• Andy Lynch. Andy is an expert on a wide range of HMRC claims and before joining FWJ, he spent 18 years at HM Customs & Excise in their National Investigation Service. His experience is unrivalled in all types of HMRC claims including HMRC investigation defence, VAT claims, R&D tax credit defence, Account Freezing Orders, Tax Disclosure, Code of Practice 8 & 9 claims, winding up petition defence and much more.
• Stephen Downie. Stephen is a Partner and a former ACCA accountant who combines financial expertise with deep legal knowledge to deliver clear, commercial advice. He acts for directors, shareholders, insolvency practitioners and private clients in corporate governance disputes, director disqualification defence, and HMRC-related claims including tax avoidance schemes, PLNs, VAT and PAYE security demands. His focus is always on achieving the best outcome for clients as efficiently and cost-effectively as possible.
• Anita Sharma. Anita is a Senior Associate specialising in tax litigation and financial disputes with HMRC. She advises high-net-worth individuals and major commercial clients on appeals against HMRC decisions, complex tax assessments, and enforcement proceedings. Anita has secured interim relief following HMRC revocations to keep clients trading during appeals and is known for achieving practical, results-focused outcomes in high-value disputes.
• Khaliq Martin. Khaliq is a Senior Paralegal in the tax disputes team assisting on a broad range of HMRC investigation and defence matters. Khaliq draws on his international litigation background and public sector experience to help prepare detailed evidence and submissions for use in appeals and settlement negotiations, ensuring cases are presented clearly, carefully and effectively.

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At Francis Wilks & Jones we have considerable experience of assisting directors and business owners with dealing with VAT or PAYE Notice of Requirements. Should you require any assistance, please contact our Tax Dispute team who can discuss such matters with you.

If your enquiry is urgent, contact Partners Andy Lynch or Stephen Downie today and they will be happy to speak to you.

“FWJ did precisely what it set out to do. I am extremely grateful for its assistance.”

A client who had received a Request for Security from HMRC for a sum that would have caused their company severe financial difficulties. We helped them to have the entire bill withdrawn