If you protected the deposit within thirty days but did not serve the deposit prescribed information, you or we can serve this late. You cannot under any circumstances protect the deposit late.

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If the deposit wasn't protected, as said, there are two ways of fixing this. The objective is to dispose of the deposit so there isn't one when you serve the notice. An agreed deduction comes from the tenant to the landlord. 'Please use my deposit of £500.00 against my arrears of £1000.00, which will reduce the arrears to £500.00'. You can present this letter to the tenant for signing and dating. It might also read, 'Please use my deposit of £500.00 again for the rent due for January (whatever the next month is) forthwith'. Without forthwith, how do you serve the notice as you need no doubt that there is no deposit when the notice is served?

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If you cannot get this signature, you must return the deposit. “But the tenant is in arrears, so I don't want to return it. Why should I?”

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You should do so because you will not get an eviction if you do not, and you must see the return of the deposit as an enabling and empowering thing rather than the money you are returning. It is their money, and I am sure that is why the deposit rules came about. Now and again, this enables the tenant to find another place because they now have a deposit to put down.