[UK] Government considers mandatory Direct Debit for VAT and PAYE payments

The UK government is consulting on proposals which would require the majority of VAT-registered businesses and employers to pay VAT and PAYE liabilities by Direct Debit, RossMartin.co.uk reports.

The change is intended to reduce late payment and simplify the payment process. 

According to an HMRC analysis, late payment is often linked to missed deadlines or to payments being allocated incorrectly, not inability or unwillingness to pay.

VAT and PAYE payments can require taxpayers to manually track deadlines, initiate payments and ensure the correct tax reference number is used. The government reportedly believes automating the payment process by requiring Direct Debit could help reduce the administrative burden, minimise errors and reduce late payments.

Currently, the option to pay by Direct Debit is available for both VAT and PAYE, but most payments are still made via other electronic methods.

The government is seeking views on:

• Why businesses that could use Direct Debit choose to pay by other electronic methods

• The impacts of requiring payment by Direct Debit, including practical barriers such as cash flow management and process changes

• The exceptions or alternative arrangements that may be needed

In both cases, payments above a certain threshold would reportedly be exempted as Direct Debit payments are limited to £20 million by the BACS payment scheme, which underpins the Direct Debit scheme.

The consultation will also consider the following issues specific to VAT:

• Businesses that do not have a UK bank account cannot pay by Direct Debit

• Businesses that are exempt from online filing are currently not required to pay electronically

• Businesses with an annual VAT liability exceeding £2.3 million currently make VAT Payments on Account (POA). These businesses are required to pay by electronic means, but there is currently no facility for them to make POAs or balancing payments by Direct Debit

The consultation is seeking views on how such businesses would be impacted.

These are the specific issues for PAYE under consideration:

• The government has indicated that the requirement to pay by Direct Debit is likely to be extended to all employers, subject to any exceptions.

• PAYE legislation currently only requires employers with at least 250 employees to pay via a range of electronic means, including Direct Debit.

• Exceptions may be made for those who are digitally excluded for reasons such as religious beliefs, disability, age or remote location.

The consultation will close on August 16, 2026. Responses may be submitted via this online form, by email, or by post.

Source: RossMartin.co.uk

(Link via original reporting)

The UK government is consulting on proposals which would require the majority of VAT-registered businesses and employers to pay VAT and PAYE liabilities by Direct Debit, RossMartin.co.uk reports.

The change is intended to reduce late payment and simplify the payment process. 

According to an HMRC analysis, late payment is often linked to missed deadlines or to payments being allocated incorrectly, not inability or unwillingness to pay.

VAT and PAYE payments can require taxpayers to manually track deadlines, initiate payments and ensure the correct tax reference number is used. The government reportedly believes automating the payment process by requiring Direct Debit could help reduce the administrative burden, minimise errors and reduce late payments.

Currently, the option to pay by Direct Debit is available for both VAT and PAYE, but most payments are still made via other electronic methods.

The government is seeking views on:

• Why businesses that could use Direct Debit choose to pay by other electronic methods

• The impacts of requiring payment by Direct Debit, including practical barriers such as cash flow management and process changes

• The exceptions or alternative arrangements that may be needed

In both cases, payments above a certain threshold would reportedly be exempted as Direct Debit payments are limited to £20 million by the BACS payment scheme, which underpins the Direct Debit scheme.

The consultation will also consider the following issues specific to VAT:

• Businesses that do not have a UK bank account cannot pay by Direct Debit

• Businesses that are exempt from online filing are currently not required to pay electronically

• Businesses with an annual VAT liability exceeding £2.3 million currently make VAT Payments on Account (POA). These businesses are required to pay by electronic means, but there is currently no facility for them to make POAs or balancing payments by Direct Debit

The consultation is seeking views on how such businesses would be impacted.

These are the specific issues for PAYE under consideration:

• The government has indicated that the requirement to pay by Direct Debit is likely to be extended to all employers, subject to any exceptions.

• PAYE legislation currently only requires employers with at least 250 employees to pay via a range of electronic means, including Direct Debit.

• Exceptions may be made for those who are digitally excluded for reasons such as religious beliefs, disability, age or remote location.

The consultation will close on August 16, 2026. Responses may be submitted via this online form, by email, or by post.

Source: RossMartin.co.uk

(Link via original reporting)