As part of HMRC’s powers in the administration and collection of VAT, they are able to issue notices to taxpayers requesting that they give security for payment of any VAT which may become due in the course of providing goods/services, if HMRC believe this necessary for the protection of the revenue. In some instances, this can be a condition of supplying goods/services under a taxable supply and for the repayment of input tax, which can be claimed to the extent it is incurred in the course of making taxable supplies.

One such instance of this is in the case of Pugsley & Anor, who received a notice stating that a security was required and that, if the taxpayer disagreed with this decision, they had the following options;

• send the issuing officer any further information they wanted him to consider;
• ask for the decision to be reviewed by an HMRC officer not previously involved in the matter; or
• appeal to an independent tribunal.

When the taxpayer responded to this notice with ‘a case for reviewing the decision’, a local reconsideration was undertaken and upheld the issuing of a request for security. It was also communicated to the taxpayer that a further, independent review could be requested however, a formal request for this to be carried out was not received.

The security requested was not paid to HMRC and subsequently the appellant was prosecuted in the magistrates’ court on the basis that they continued to provide goods and services, which is in contravention of the terms set out in the notice requesting security.

In the event a notice requesting security is received, the taxpayer has the right to request either an internal reconsideration, an independent review of this decision or appeal the decision to an independent tribunal provided a request is made clearly via the appropriate channels and within the time limits set out in the original notice. If successful, the business can continue to trade without paying this amount.

If you or your clients have received a request for security and are unsure as to how to approach this, please call our free VAT helpline for expert advice.