Yes I do think you should protect the deposit now. If you do not, you will not be able to issue a section 21.
You can return the deposit, but this will not protect you for rent arrears.
The best solution for you at this stage would be to protect the deposit. Provided it is protected before you issue the section 21, you can still claim for possession.
The tenant is still able to claim for 3 times. Whether this is granted is a matter for the courts.
I hope this answers your question. If so, kindly rate the answer and provide feedback.
If you have any further questions, please do not hesitate to ask.