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HMRC internal manual

Securities Guidance

HM Revenue & Customs
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Giving security: security deposits: effect on VAT default surcharges

A security deposit is not a pre-payment of VAT, but it would be disproportionate to apply a surcharge where we hold a security deposit so it should be taken into account when calculating a surcharge.

You should inhibit automatic surcharge processing while a deposit is held by completing a VAT719.

Don’t forget to lift the inhibit when the security deposit is no longer held.