Notice of Requirement: What it means and how to respond

HM Revenue & Customs (HMRC) has a range of enforcement tools at its disposal to protect the public purse where it believes there is a serious risk of non-payment of taxes and duties.

Among the most disruptive is the Notice of Requirement to provide a security payment in respect of PAYE, VAT or other taxes.

HMRC is increasingly using these powers where a business has a history of late payment or has allowed tax arrears to build up.

What is a Notice of Requirement?

A Notice of Requirement is a formal demand from HMRC requiring a taxpayer to provide a sum of money as security for current and future tax liabilities.

Security can be required across a range of taxes, but most commonly applies to PAYE and National Insurance, as well as VAT.

HMRC will typically use this power where it believes there is a risk that a business will not meet its ongoing tax obligations. This often arises where there has been non-compliance either in the current business or in a previous entity.

When is a security payment required?

Security is usually demanded where HMRC identifies clear risk factors.

This commonly includes a history of non-payment of PAYE or VAT, evidence that a business is continuing to trade despite tax arrears, or links to previous businesses that have left unpaid liabilities behind.

HMRC also pays close attention to sectors it considers higher risk, such as construction, labour supply chains, hospitality and retail, particularly where there is concern around phoenix activity. Insolvency or liquidation of associated businesses can also be a key trigger.

Who is liable?

HMRC can require more than one person to provide security. In practice, this is usually the directors or other individuals exercising control over the business.

Anyone named in the Notice will be jointly and severally liable, meaning each individual can be pursued for the full amount.

How is the security calculated?

The level of security is based on HMRC’s estimate of the business’s future tax liabilities over a set period.

For VAT, this is typically around four months’ worth of liabilities. For PAYE and National Insurance, it is usually between four and six months.

However, the amount is not fixed. HMRC may increase it depending on the perceived level of risk and may apply an additional buffer.

Security can be provided as a cash deposit, a bond, or a guarantee from an approved financial institution.

What happens if you do not comply?

Failure to comply with a Notice of Requirement is a criminal offence.

If a business continues to trade without providing the required security, directors and other controlling individuals can face personal liability and prosecution.

Without proper advice, businesses risk trading unlawfully. This can result in fines of up to £5,000 per taxable supply and, in serious cases, director disqualification.

Are PAYE and VAT notices linked?

While PAYE and VAT are separate regimes, HMRC takes a holistic view of compliance.

Where a risk is identified in one area, HMRC will often assess exposure across others. As a result, it is common for Notices of Requirement to cover both PAYE and VAT at the same time.

Can you appeal a Notice of Requirement?

Yes! A Notice of Requirement can be challenged.

The process differs slightly between PAYE and VAT, but both involve strict deadlines and require well-structured technical arguments. It is also possible to make representations to HMRC to reduce the level of security required.

In practice, early specialist advice is key, both to challenge the notice where appropriate and to negotiate a more manageable outcome.

Why early advice matters

A Notice of Requirement is one of the most disruptive compliance measures HMRC can deploy. In some cases, it can effectively prevent a business from continuing to trade.

With HMRC continuing to focus on protecting tax revenues, particularly in higher-risk sectors, the use of security notices is increasing.

Once a notice is issued, it cannot be ignored. Immediate action is required.

Specialist advisers can engage with HMRC, challenge the basis of the notice, negotiate the amount of security, or explore alternative arrangements such as bank guarantees.

Final thoughts

A Notice of Requirement is a clear signal that HMRC considers a business to be high risk.

Handled correctly, it is possible to manage the position and, in some cases, reduce the immediate financial burden. Handled poorly, it can escalate quickly into criminal exposure and serious commercial consequences.

If you are concerned about your position, or have received a Notice of Requirement, early engagement is critical.