HMRC Securities

The Lonsdale Property Development Ltd case is a recent VAT decision that highlights HMRC’s powers to require security from businesses with a poor compliance history. In this case, Lonsdale was asked by HMRC to provide security for both VAT and Construction Industry Scheme (CIS) liabilities, due to a pattern of late or missed payments. Even though the company eventually paid off its debts, HMRC insisted that security was still necessary to protect the Revenue from future risk.

The VAT legislation allows HMRC to require security if they believe it’s needed to safeguard tax collection. When Lonsdale challenged this, the First-tier Tribunal made it clear that their role was not to second-guess HMRC’s decision, but to check if it was reasonable and based on all relevant facts. The Tribunal looked at the company’s compliance history and agreed with HMRC that the risk of future non-compliance justified the security requirement, even though the debts had been cleared by the time of the review.

A key point from the case is that paying off arrears after HMRC has issued a security notice doesn’t automatically remove the risk in HMRC’s eyes, especially if there’s a track record of late payments. The Tribunal also stressed that the review process is crucial: it’s the decision as it stands after HMRC’s internal review that matters, not just the original notice.

For businesses, the message is clear: maintaining a good compliance record is essential. If there’s a history of late or missed payments, HMRC can require security, and the Tribunal is unlikely to overturn that decision unless it’s clearly unreasonable. The case also confirms that the purpose of security is to protect future tax revenue, not to collect past debts, and that security can be released early if HMRC is satisfied the risk has gone.

In summary, Lonsdale Property Development reinforces HMRC’s broad discretion to require security for VAT and CIS, and the importance for businesses to stay compliant to avoid such measures.