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HMRC internal manual

Securities Guidance

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HM Revenue & Customs
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Calculating the amount of security: the quantum calculation - PAYE/NICs: estimating future revenue risk using payments information on file

The most accurate method of estimating the future revenue risk is to refer to the most recent payment and return information on file.

The first two steps in the formula for arriving at the amount of security requires us to establish the PAYE/Class 1 NICs paid in 1 month and an amount of PAYE/Class 1 NICs at risk in the 3 months it would take to wind up the business, see SG33100. Where we have up to date payment (remittance) and return information the total of the first two steps in the formula will normally be the total of the 4 previous monthly payments the employer has made.

Look at the employer’s Business Review of Collection Service (BROCS) record to find remittance information.

If the employer’s most recent payments are not indicative of their usual trading pattern, perhaps because their business is seasonal, you may use older information in your calculation of 4 months’ revenue at risk.

Example 1

Werdna Fashions Ltd is a clothing business that has made the following remittances since it commenced trading

MONTH PAYE
£ Class 1 NICs
£      
       
  4 23,118 17,440
  5 21,709 16,377
  6 24,649 18,595
  7 23,231 17,525
  8 22,312 16,832
  9 24,810 17,734
  10 24,229 18,561

The grand total of the last 4 months’ remittances is £165,234. If there is no outstanding debt the amount of security you require will be £165,234.

Example 2

In this example Werdna Fashions Ltd has a big Christmas order, pays overtime, takes on casuals and pays a large Christmas bonus to its staff

MONTH PAYE
£ Class 1 NICs
£      
       
  4 23,118 17,440
  5 21,709 16,377
  6 24,649 18,595
  7 23,231 17,525
  8 32,312 24,832
  9 35,910 25,646
  10 24,229 18,561

This is a seasonal business, so you should use all of the payment information to arrive at an estimate of 1 month’s PAYE/Class 1 NICs (step 1 of the formula, see SG33100).

The grand total of all the payments is £324,134. 1 month’s PAYE/Class 1 NICs is £46,305 (£324,134 / 7).

Step 2 of the formula requires you to calculate 3 months’ revenue at risk. This figure is £46,305 x 3 = £138,915.

If there is no outstanding debt (step 3) the amount of security you require is £46,305 + £138,915 = £185,220.

Note where the employer has provided benefits that will attract Class 1A NICs you should include the whole year’s Class 1A NICs in the quantum. Figures for Class 1A NICs are available on a P11D(b) return due to be filed by 19 July after the end of the tax year.

It is essential that you keep a written record of how you came to your decision on the amount of security. This will be invaluable if the employer appeals to tribunal or requests a review, see SG70300.

Remember that you may need to defend your calculation at tribunal if the employer appeals.

If you do not have up to date payment and return information you will have to think of other ways to arrive at an amount of security that is reasonable and proportionate to the revenue at risk, see SG33300