FCA authorised · FRN 724952 0117 325 0027Quote & buy →
Surety bonds
A surety bond is a guarantee, issued by an insurer or bank, that pays a third party if your business fails to meet a contractual or legal obligation. Contracts, public bodies and HMRC often require one before you can start work or use a customs facility.
Part of: Bonds and surety
In short
A surety bond involves three parties: your business (the principal), the party protected (the beneficiary) and the surety that issues the bond. UK law treats suretyship issued by a non-bank for a premium as a class of general insurance, covering performance, fidelity, customs and similar bonds. Common bonds include performance, advance payment, retention and warranty bonds in construction and engineering, and customs and duty deferment guarantees for importers. The surety assesses your finances and usually takes a counter-indemnity, so if it pays a claim it recovers the money from you. Bonding capacity can be arranged bond by bond or as a facility.
A surety bond is a three-party guarantee. You (the principal) owe an obligation to the beneficiary, such as completing a contract or paying duty. The surety promises the beneficiary that, if you fail, it will pay up to the bond amount.
Under Schedule 1 to the Regulated Activities Order, suretyship is a class of general insurance. It includes "fidelity bonds, performance bonds, administration bonds, bail bonds or customs bonds or similar contracts of guarantee" where the issuer does not carry on banking business, the bond is not merely incidental to another business, and it is issued for premiums. Banks issue similar guarantees as part of their banking business.
Unlike most insurance, a bond does not protect you. If the surety pays, it will usually recover the money from you under a counter-indemnity. What it gives you is the ability to win and perform work without tying up cash.
| Bond | What it guarantees | Who usually asks for it |
|---|---|---|
| Performance bond | Compensation, up to a set sum, if the contractor fails to perform | Employers and main contractors |
| Advance payment bond | Repayment of money paid upfront if the work or goods are not delivered | Buyers making advance or mobilisation payments |
| Retention bond | Cover for the retention amount, so the contractor is paid in full | Employers and main contractors in place of cash retention |
| Warranty or maintenance bond | Remedying defects during the defects or warranty period | Employers and overseas buyers |
| Bid or tender bond | That a bidder will sign the contract and provide other bonds if it wins | Tendering authorities, commonly on overseas or large contracts |
| Customs and duty deferment guarantees | Payment of customs duty, excise and import VAT owed to HMRC | HMRC, for deferment accounts and some customs procedures |
| Fidelity bonds | Loss caused by employees' dishonesty, where a contract or regulator requires a bond | Clients or bodies that make a bond a condition of dealing |
Each has its own page or definition: performance bonds, advance payment bonds, retention bonds, maintenance bonds and fidelity guarantee insurance.
Construction is where many businesses first meet bonds. Employers commonly ask main contractors for a performance bond, often around 10% of the contract value, though the figure varies, and main contractors may pass similar requirements down to larger subcontractors. The bond wording, on-demand or conditional on default, matters as much as the amount.
Retentions may change. In its Time to Pay Up response of 24 March 2026, the government said it proposes to prohibit cash retentions in construction contracts, will consult further on implementation, and will work with the financial services sector to develop the surety market for construction. As at October 2026 that is not yet law. Our construction insurance guide covers the rest of a contractor's programme.
Importers who want to defer payment of customs duty, excise duty or import VAT (where not using postponed VAT accounting) through a duty deferment account must normally provide a guarantee. HMRC's guidance says that, unless you have a guarantee waiver, the guarantee must come from a UK-established financial institution regulated by the Prudential Regulation Authority. A waiver may be available to UK-established businesses; for waivers over £10,000 a month HMRC asks for a PFS1 form and supporting documents, unless you are an authorised economic operator.
HMRC's guidance on choosing a guarantor says most major banks and insurance companies are approved to act as guarantors. Other customs procedures can need a comprehensive guarantee too: in Great Britain, HMRC's guidance says you need one for transit if you move goods more than three times a year, and for full authorisation for special procedures or customs warehousing only where HMRC requires it. Rules in Northern Ireland differ.
Importers can read more in our importer and exporter insurance guide.
Overseas buyers often require advance payment, performance or warranty bonds, sometimes issued through a local bank. UK Export Finance's Bond Support Scheme gives your bank a partial guarantee of up to 80% of a bond's value for bid, advance payment, performance, retention and warranty bonds, so the bank may return collateral for working capital. Its Bond Insurance Policy covers unfair calls on bonds and calls caused by certain political events. Our guide to export credit insurance covers the buyer payment side.
Our comparison of surety bonds and bank guarantees explains why many businesses move bonds away from their bank.
Apex arranges surety bonds and trade credit insurance. A broker reads each enquiry and comes back with options; there is no fee for a quote, and any bond is subject to the insurer's acceptance and the bond terms. To quote we need your business activities, turnover, location and claims history, plus your accounts, the bond type, wording, amount and beneficiary, the underlying contract or requirement, and any bonds already in issue. The bonds and surety and performance bond definitions give more background.
It is a guarantee issued by an insurer or bank to a third party, promising to pay up to a set amount if your business fails to meet an obligation, such as completing a contract or paying customs duty. If the surety pays, it usually recovers the money from you under a counter-indemnity.
The most common are construction and engineering bonds (performance, advance payment, retention, warranty and bid bonds), and customs guarantees for HMRC, including duty deferment guarantees. Fidelity bonds, administration bonds and bail bonds are also listed in UK law as suretyship.
Normally yes, unless HMRC approves a guarantee waiver. HMRC's guidance says the guarantee must come from a UK-established financial institution regulated by the Prudential Regulation Authority. Most major banks and insurance companies are approved to act as guarantors.
Legally, suretyship is a class of general insurance when issued by a non-bank for a premium. In practice it works differently: the bond protects the beneficiary, not you, and the surety will usually recover any payment from you under a counter-indemnity.
It depends on how quickly you can provide accounts, the contract and the bond wording, and on whether the surety accepts the wording. A business with an existing facility can often have bonds issued faster than one applying for the first time, so start before you need the bond.
Tell us what your business does, your turnover and any claims. A broker reads every enquiry and comes back with options. No fee for a quote. Or call 0117 325 0027.
Start a commercial enquiry Request a callbackApex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales, company number 07014570. This page is general information, not advice on your individual circumstances, and it does not guarantee that cover will be available or on what terms.
