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HMRC internal manual

Securities Guidance

From
HM Revenue & Customs
Updated
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Calculating the amount of security: the quantum calculation - PAYE/NICs: the formula

The quantum is a formula we use to calculate the amount of security we require. It’s important that you use the formula set out in this chapter because tribunals have found it acceptable in VAT/environmental tax cases.

There are up to three sums to calculate

  1. The estimated future revenue at risk should an employer fail to pay amounts due to us.
  2. The further estimated future revenue at risk built up while HMRC winds up the employer’s business.
  3. The actual debt an employer has at the time we require security.

Where an employer makes monthly payments the estimated revenue at risk will be 1 month’s PAYE/Class 1 NICs.

HMRC estimate that the time taken to wind up a business (step 2) is 3 months.

The quantum calculation formula is as follows

  1. The amount of PAYE/Class 1 NICs paid in 1 month.
  2. The amount of PAYE/Class 1 NICs at risk in the 3 months it would take to wind up a business is added to 1 above.
  3. The employer’s debt at the time security is required can be added to 1 and 2 above, see SG34000.

The total of the figures in the three steps above is the amount of security we require. We also add any Class 1A NICs due for the year.

You may have return and payment information on file that will allow you to accurately calculate the amount of security required, see SG33200.

Where you do not have returns or payments information you may need to estimate the figures using other methods, see SG33300.

Whichever methods you use to calculate the amount of security required you should arrive at a figure that is reasonable and proportionate to the revenue at risk.