---
title: "Security Notices for VAT & PAYE: How to Avoid Criminal Liability"
url: https://taxdisputes.co.uk/2026/09/security-notices-for-vat-paye-how-to-avoid-criminal-liability/
date: 2026-09-18
modified: 2026-09-18
lang: en
author: "Muhammad Awais Bahadur"
description: "A letter headed \"Notice of Requirement to give Security\" is one of the most serious documents HMRC can send a business. It is not a routine demand for tax. It..."
categories:
  - "PAYE"
  - "Value Added Tax"
  - "VAT"
tags:
  - "Criminal Defence"
  - "director liability"
  - "HMRC enforcement"
  - "HMRC Prosecution"
  - "HMRC Security Notice"
  - "NIC Security"
  - "Notice of Requirement"
  - "PAYE Security"
  - "tax litigation"
  - "Tax Tribunal"
  - "Time to Pay"
  - "VAT Security"
image: https://taxdisputes.co.uk/wp-content/uploads/2026/09/Gemini_Generated_Image_tlb5wgtlb5wgtlb5-2-1024x572.png
word_count: 2164
---

# Security Notices for VAT & PAYE: How to Avoid Criminal Liability

A letter headed "Notice of Requirement to give Security" is one of the most serious documents HMRC can send a business. It is not a routine demand for tax. It is a legal requirement, backed by criminal sanctions, and the deadlines are short. Directors who set it aside as "just another HMRC letter" are the ones who later receive a summons to the Magistrates' Court.

This guide explains how [HMRC security notices](https://lexlaw.co.uk/solicitors-london/hmrc-notice-of-requirement/) work for VAT and PAYE, when non-compliance becomes a criminal offence, and the practical and legal steps that protect you and your company from prosecution.

### What is an HMRC security notice?

HMRC can require a business to pay money upfront, or to provide a bond, as security for tax it believes may not be paid in future. The formal document is called a Notice of Requirement (NOR). HMRC's own [Securities Guidance](https://www.gov.uk/hmrc-internal-manuals/securities-guidance/sg13000) says security should only be sought where there is a serious risk to the revenue, and that it should be sought reasonably and proportionately.

The power comes from different places depending on the tax:

- **VAT:** paragraph 4(2) of [Schedule 11 to the Value Added Tax Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/schedule/11) allows HMRC to require a taxable person to give security, as a condition of making or receiving taxable supplies, where it thinks this necessary for the protection of the revenue.

- **PAYE and NICs:** Part 4A of the Income Tax (Pay As You Earn) Regulations 2003 and the parallel provisions in Schedule 4 to the Social Security (Contributions) Regulations 2001, inserted by [SI 2012/822](https://www.legislation.gov.uk/uksi/2012/822/part/3/made).

- **Other regimes:** Construction Industry Scheme deductions and certain environmental taxes have their own security provisions.

Security is usually a cash deposit, a payment into a joint interest-bearing account, or a performance bond from an approved financial institution. HMRC does not accept property, vehicles or other assets.

### Why does HMRC issue a security notice?

HMRC does not need to prove that you have done anything dishonest. It needs to show that it reasonably thought security was necessary. In practice, the triggers we see most often are:

- a history of late or missed VAT, PAYE or NIC payments in the current business;

- unpaid liabilities in a previous company controlled by the same director, often called "phoenixism";

- returns filed on time but not paid, or repeated payment only when HMRC threatens a [winding-up petition](https://windinguppetitionsolicitors.co.uk/opposing-a-winding-up-petition/);

- a failed [time to pay](https://windinguppetitionsolicitors.co.uk/obtaining-an-adjournment-adjourning-winding-up-petition-lawyers-london/) arrangement; and

- suspected tax fraud, or involvement with high-risk trading patterns.

HMRC normally sends a warning letter first. It may skip that step where it believes a warning would itself increase the risk of non-payment.

### When does non-payment become a criminal offence?

This is the point directors most often misunderstand. The security notice itself is not a crime. The offence is committed by what happens after the deadline passes.

**VAT.** Under [section 72(11) of the VAT Act 1994](https://www.legislation.gov.uk/ukpga/1994/23/section/72), it is an offence to supply, or be supplied with, goods or services in contravention of a security requirement under paragraph 4(2) of Schedule 11. The offence is tried summarily in the Magistrates' Court. Because it attaches to each supply, every invoice raised after the deadline can in principle found a separate charge.

**PAYE and NICs.** Failing to give the security required is an offence contrary to [section 684(4A) of the Income Tax (Earnings and Pensions) Act 2003](https://www.legislation.gov.uk/ukpga/2003/1/section/684), with the equivalent NICs offence created by paragraph 29X of Schedule 4 to the 2001 Regulations. The First-tier Tribunal confirmed this framework in [Benson v HMRC [2025] UKFTT 304 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09454.html).

On penalties, HMRC's published materials have quoted different ceilings over the years (£5,000 and £20,000 per offence). Its current Securities Guidance describes the fine as [unlimited for each offence](https://www.gov.uk/hmrc-internal-manuals/securities-guidance/sg40500), and HMRC may also seek compensation for lost tax. A conviction also creates a criminal record, which matters for director appointments, banking relationships, professional standing and [directors' disqualification](https://lexlaw.co.uk/practice-areas/litigation-dispute-resolution-solicitors-london/company-directors-disqualification-proceedings-disqualification-orders/) risk.

**Who is exposed?** For PAYE and NICs, HMRC can require several people, including directors and controllers, to give security jointly and severally. For VAT, the notice is served on the taxable person, which is the company. In *Benson*, the tribunal held that HMRC had no power to issue a VAT notice to a director personally, because a director is not a taxable person. HMRC's own factsheet nevertheless warns that individuals involved in a business that keeps making taxable supplies without giving security may be prosecuted.

### How much security can HMRC demand?

HMRC uses a formula. For VAT, it generally calculates four months of expected liability for monthly filers or six months for quarterly filers, then adds any arrears. For PAYE and NICs, the standard approach is roughly four months of estimated future liabilities plus arrears. In *Benson*, that produced a demand of £165,725.46 against a company with existing arrears of just over £109,000.

The figure is often far higher than businesses expect, and it is frequently wrong. Common errors include:

- using returns that do not reflect the current trading pattern;

- ignoring payments made shortly before the notice; and

- failing to allow the lower multiple for monthly returns.

In [D-Media Communications v HMRC [2016] UKFTT 430 (TC)](https://taxdisputes.co.uk/wp-content/uploads/2025/06/D-Media-Communications-Limited-v-HMRC-Decision.pdf), the tribunal varied a PAYE and NICs demand of £147,134.88 down to £25,000 after finding HMRC had not investigated properly. In [Swann v HMRC [2020] UKFTT 176 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07663.html), the tribunal upheld the requirement in principle but sent the calculation back because HMRC had overlooked payments the company had made.

### The deadline that matters most

The notice will state a date by which security must be given. For PAYE and NICs, that date cannot be earlier than 30 days after the notice is given. The right to appeal must be exercised within roughly the same window. HMRC's guidance refers to 30 days for VAT and 31 days for PAYE and NICs, so treat the earlier date as your deadline.

Missing that window is the single most damaging mistake. Once the security date has passed unpaid and no appeal is on foot, HMRC can refer the file to prosecutors. Your options narrow sharply from that point.

### Six practical steps to avoid prosecution

**1. Diarise the dates on day one.** Note the security date and the appeal deadline. Check the date on the notice, not the date you opened the envelope. Notices are often served at the registered office or a principal place of business, and copies go to directors at home.

**2. Lodge a written appeal within time.** A protective appeal costs little and preserves everything. For VAT, you can accept HMRC's offer of an internal review or appeal to the [First-tier Tribunal](https://lexlaw.co.uk/first-tier-tax-tribunal-hmrc-representation-solicitor-london/). For PAYE and NICs, the appeal goes to HMRC first, setting out the grounds in writing. HMRC's guidance states that it does not require security to be given while an appeal is undetermined and that, once an appeal reaches the tribunal, it takes no further action until the appeal is settled.

**3. Consider a time to pay request for PAYE and NICs.** Under the PAYE Regulations, if the employer makes a time to pay request under paragraph 10(1) of Schedule 56 to the Finance Act 2009 before the security date, the requirement to give security by that date does not apply. HMRC's guidance confirms that it does not require security if a time to pay request is accepted. A realistic proposal, supported by cash-flow evidence, is often the quickest route to withdrawal. A poorly prepared one can fail and cost you weeks.

**4. Negotiate the amount, not just the principle.** Even where HMRC is entitled to require some security, the figure, the period and the person from whom it is required can all be challenged. A reduction in the amount can turn an impossible demand into a manageable one.

**5. Gather evidence that HMRC did not have.** The tribunal reviews what HMRC knew at the time of its decision. Fresh material, such as improved compliance, new funding or evidence about a previous business, should be sent to HMRC promptly so that it must reconsider.

**6. Do not keep trading on the assumption that nothing will happen.** In *Benson*, the tribunal stressed that the company kept trading after security was demanded, and that arrears rose further. That undermined the purpose of the notice and weighed heavily against the director.

### Grounds of challenge and what the tribunal actually decides

The First-tier Tribunal does not substitute its own view about whether security is a good idea. Its jurisdiction is supervisory. The Court of Appeal settled the approach in *John Dee Ltd v Customs and Excise Commissioners* [1995] STC 941, and the tribunal reapplied it in [Lonsdale Property Development Ltd v HMRC [2025] UKFTT 1397 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09686.html). The question is whether HMRC acted in a way no reasonable decision-maker could, took into account something irrelevant, or ignored something it should have weighed. The burden is on the appellant.

Successful challenges tend to turn on:

- **Failure to give reasons or an opportunity to respond.** In Pachangas Mexican Restaurant Ltd v HMRC [2019] UKFTT 436 (TC), the notice was set aside because HMRC gave no reasons and the taxpayer had no chance to make representations.

- **Inadequate investigation.** *D-Media* is the example above.

- **Wrong person or wrong sum.** Security must be sought from an appropriate person, in the right amount, for a justified period.

- **A director unfairly tarred by a previous business.** Where the previous failure was outside the director's control, or the new business is genuinely compliant, the case for security weakens.

Unsuccessful challenges are equally instructive. In [Boship Lions Farm Hotel Ltd v HMRC [2018] UKFTT 411 (TC)](https://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2018/TC06613.html) and [UBI Ltd v HMRC [2018] UKFTT 620 (TC)](https://www.bailii.org/cgi-bin/format.cgi?doc=/uk/cases/UKFTT/TC/2018/TC06771.html), the tribunal upheld notices where the businesses and their directors had a record of unpaid liabilities. *Lonsdale* went further. The company cleared its debts within weeks of the notice, yet the tribunal held that late payment cannot be cured retrospectively and that the purpose of security is protection against future default, not collection of arrears. It also noted that inability to afford the security is not a relevant consideration, following *Highlake Ltd v HMRC* [2016] UKFTT 808 (TC).

### Late appeals: the trap that catches directors

Missing the appeal window is not always fatal, but it is expensive. The tribunal applies the three-stage test in [Martland v HMRC [2018] UKUT 178 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2018/178.html): the length of delay, the reason for it, and all the circumstances. Outcomes vary sharply:

- In *Benson*, an appeal seven months late was refused. Stress, a sabbatical and the lack of legal advice were not good reasons, and the director was left facing a probable conviction. The tribunal relied on [Horder v HMRC [2023] UKUT 106 (TCC)](https://www.bailii.org/uk/cases/UKUT/TCC/2023/106.html), which confirms that the prospect of a criminal conviction does not outweigh the importance of statutory time limits.

- In [Blocksure Ltd v HMRC [2024] UKFTT 397 (TC)](https://www.bailii.org/uk/cases/UKFTT/TC/2024/TC09164.html), permission for a late appeal was also refused..

The lesson is plain. Do not rely on a late appeal to rescue you. Take advice inside the first 30 days.

### Security notices and insolvency risk

A security notice is often a warning sign that other enforcement is close. HMRC may issue a statutory demand or a [winding-up petition](https://lexlaw.co.uk/practice-areas/winding-up-petitions-solicitors-london/hmrc-petition-winding-up/) on the same arrears, and a bank may freeze the account once a petition is advertised. A [validation order](https://windinguppetitionsolicitors.co.uk/validation-order/) can protect trading in that situation. Our guide on [insolvency risk for directors](https://windinguppetitionsolicitors.co.uk/risks-for-directors/) explains the wider exposure, including personal liability for tax debts and disqualification. It is usually better to address the security notice, the arrears and the insolvency risk together as one strategy rather than in isolation. Our [HMRC enforcement defence](https://lexlaw.co.uk/hmrc-debt-enforcement-defence-statutory-demand-winding-up-peititon-solicitor-london/) team routinely does exactly that.

### If an adviser missed the deadline

Some directors discover that a notice was forwarded to an accountant or agent who failed to act. If a missed appeal deadline has led to prosecution or a needless loss, there may be a claim against the adviser. The rules on [negligent tax advisers](https://professionalnegligenceclaimsolicitors.co.uk/bad-hmrc-finance-advice-sue-advisor/) and [negligent accountants](https://professionalnegligenceclaimsolicitors.co.uk/compensation-negligent-accountants-financial-tax-advisors/) are worth reading, and [limitation periods](https://professionalnegligenceclaimsolicitors.co.uk/limitation-period-in-professional-negligence-claims/) apply.

### How LEXLAW can help

Our dual-qualified solicitors and barristers regularly advise on [HMRC security notices](https://taxdisputes.co.uk/legal-representation/hmrc-notice-requirement-tribunal-appeals-solicitor-legal-advice/), including protective appeals, negotiation with HMRC, time to pay proposals, First-tier and Upper Tribunal litigation, and the defence of criminal proceedings brought in the Magistrates' Court. Our tax team includes former HMRC counsel and specialist [tax solicitors](https://taxdisputes.co.uk/tax-solicitors/) and [tax barristers](https://taxdisputes.co.uk/tax-barristers/). We work from chambers in Middle Temple and can review your notice, calculate whether HMRC's figure is defensible and advise on the most effective route to protect you and your business.

Our discounted minimum fixed fee of £1,750 plus VAT covers a detailed review of your papers and an advice and strategy meeting with both a solicitor and a barrister. [Check your case](https://lexlaw.co.uk/legal-case-assessment/) or call us on 02071830529.

**HMRC SECURITY NOTICES: ACT PROMPTLY.** You may have as little as 30 days from the date of the notice to appeal, request time to pay or give security. The options for avoiding criminal sanctions narrow quickly after that. Take specific legal advice on your circumstances immediately.

*The information in this article is for reference purposes only and is not legal advice. It is not a complete or authoritative statement of the law.*