Mandatory Direct Debit proposed for VAT and PAYE payments

HMRC analysis suggests that late payment is often linked to missed deadlines or to payments being allocated incorrectly, rather than to an 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 considers that automating the payment process by requiring Direct Debit could help reduce administrative work, minimise errors and reduce late payments.

Direct Debit: common themes

Paying by Direct Debit is already available for both VAT and PAYE, although most payments are currently made using other electronic methods.

Across both taxes, 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 be exempted, because Direct Debit payments are limited to £20 million by the BACS payment scheme, which underpins the Direct Debit scheme.

Direct Debit for VAT

In addition to the common themes above, the consultation considers specific issues for VAT.

• Businesses that do not have a UK bank account cannot pay by Direct Debit.
• Businesses that are excepted 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). While these businesses are required to pay by electronic means, there is currently no facility for them to make POAs or balancing payments by Direct Debit.

The consultation seeks views on how such businesses would be impacted.

Direct Debit for PAYE

In addition to the common themes above, specific issues for PAYE include:

• The government has indicated that the requirement to pay by Direct Debit would most likely 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.

Encouraging uptake and sanctions for non-compliance

Proposals fall into two broad types:

• A penalty where a payment is not made by Direct Debit, and the payer is not excepted.
  • This could apply even if the payment is otherwise made in full and on time.
• A timing incentive by restricting existing payment deadline extensions. For example:
  • For PAYE, an extended deadline of the 22nd of the month (or end of the quarter for quarterly payers) applies if an electronic method is used. An option could be to limit this extension to Direct Debit only.
  • For VAT, a seven-day extension currently applies if the return is submitted electronically and payment is made by an electronic method. An option could be to limit this extension to Direct Debit only.

The consultation closes on 16 August 2026. Responses may be submitted via the online form, by email, or by post. See the consultation for details.

Useful guides on this topic

Calendar of tax deadlines and new tax measures
When do common recurring tax deadlines fall? What other tax-significant events are upcoming? What do I need to remember this month?

Deadlines: compliance (individuals & companies)
Every UK taxpayer has filing obligations and deadlines. There are penalties for late and inaccurate submissions. What are the deadlines? What penalties can be charged for missing the deadlines?

Penalties (VAT)
When do penalties apply for VAT? What penalties are charged and how can they be mitigated?

Penalties: PAYE and late payment
What tax penalties apply for late-paid PAYE and NIC? What should an employer consider when handling late payment issues under PAYE? How are penalties calculated and how can you appeal?

External link

Requiring payment of VAT and PAYE return liabilities by Direct Debit

Question 1: Are you responding to this survey as:

• A business.
• A representative body.
• An organisation.
• An individual.
• Other (please provide details).

Question 2: Are you UK-based?

• Yes.
• No (please provide details).

Question 3: Are the views offered in your responses:

• Your own views.
• Your organisation’s views.
• Your members’ views.

If you are responding to this survey as a business

Question 4: Where does your business operate? (please select all that apply).

• England.
• Scotland.
• Wales.
• Northern Ireland.
• Isle of Man.
• EU - please state which country.
• Non-EU - please state which country.

Question 5: What is your industry sector? (select the relevant option).

• Accounting.
• Construction.
• Finance.
• Hospitality and leisure.
• Motor vehicles (repair and selling).
• Production and manufacturing.
• Retail.
• Science and technology.
• Wholesale trade.
• Other (please provide details).

Question 6: To help us determine business size, please provide details on:

• The number of employees in your business (select the relevant option).
  • Less than 20.
  • 20 - 249.
  • 250 or more.
• The annual turnover (select the relevant option).
  • Less than £90,000.
  • £90,000 to £499,999.
  • £500,000 to £999.999.
  • £10 million to £9 million.
  • £10 million to £200 million.
  • More than £200 million.
• An approximate summary of how your sales are split (enter an estimated percentage for each option or 0% where not applicable).
  • Business to consumer.
  • Business to business.
  • Business to government.

Question 7: How long has your business been operating? (select the relevant option).

• Less than 12 months.
• One to five years.
• Five to 10 years.
• More than 10 years.

Question 8: Do you use an accountant for your business? (select the relevant option).

• Yes.
• No.
• Other.

Question 9: Please share any further information about your organisation or its activities that could help us better understand your responses.

Question 10: Prior to this consultation, were you aware that you could make VAT payments by Direct Debit?

Question 11: If you currently pay by Direct Debit or previously have done, what benefits or drawbacks, if any, have you experienced?

Question 12: If you were aware of the facility to pay by Direct Debit but have chosen not to use this payment method, could you explain why?

Question 13: The government expects that making payment of VAT by Direct Debit mandatory could deliver benefits for businesses, including greater automation and reduced administrative burden. What benefits, if any, do you expect this change could bring to your accounting processes or wider business operations?

Question 14: What barriers or impacts, if any, might making payment of VAT mandatory by Direct Debit have on your accounting processes or wider business operations?

Question 15: If you have chosen to use methods of electronic payment other than Direct Debit, are there particular benefits in your chosen method of payment that informed a decision to use these instead of Direct Debit?

Question 16: Are you currently excepted from submitting VAT returns electronically?

Question 17: What barriers or impacts might you face by making VAT payments by Direct Debit?

Question 18: If you have set up a Direct Debit using VAT C9 form or on your online VAT account and currently pay VAT by Direct Debit.

• Comment on the benefits of this method, if any, you have experienced.
• Comment on drawbacks, if any, you have experienced.

Question 19: Are there any particular customer groups (such as disabled people, people of different ethnic groups, age, sex or gender, marital status, sexual orientation, religion or people with or without dependents) likely to be disproportionally affected? If so, please explain how.

Question 20: What, if any, barriers might you face or impacts might you experience on your accounting processes/business if POA instalments were collected by Direct Debit?

Question 21: What benefits, if any, do you foresee if POA instalments and the balancing payments were collected by Direct Debit?

Question 22: If your VAT liability fluctuates above and below £20 million within a tax year, please explain the typical range, frequency of fluctuation under and over £20 million, and why this varies.

Question 23: Prior to this consultation, were you aware that payments of PAYE could be made automatically by Direct Debit, following an RTI return?

Question 24: How do you currently make payments of PAYE to HMRC?

Question 25: If you have previously not paid on time or paid with an incorrect reference, can you explain why this happened, and would Direct Debit help prevent this?

Question 26: If you were aware of the option to use Direct Debit but haven’t done so, please could you explain why?

Question 27: If you have used Direct Debit to make payments of PAYE to HMRC, could you:

• Comment on any benefits of this method.
• Comment on any drawbacks of this method.
• Indicate whether this remains your chosen payment method and, if not, what prompted this change.

Question 28: If you currently pay PAYE by Direct Debit, to what extent does the later payment date influence your decision to use this method, compared to other factors?

Question 29: If it is made mandatory to make payment of PAYE by Direct Debit, what impact, if any, might this have on your business?

Question 30: Are you currently excepted from submitting electronic returns for PAYE?

Question 31: Please explain any barriers or challenges, if any, that you may face in making PAYE payments by Direct Debit?

Question 32: Are there any impacts on particular groups of taxpayers (such as disabled people; people of different ethnic groups, age, sex or gender, marital status, sexual orientation, religion; or people with or without dependents) that need to be addressed? How do you suggest we can overcome these?

Question 33: Have you ever made a payment of PAYE over £20 million?

Question 34: If yes to 33, if you fluctuate above and below £20 million, please explain the typical range, frequency of fluctuation under and over £20 million, and why this varies?

Question 35: If yes to 33, what is the lowest regular payment you have made in the past three years?

Question 36: What are your views on the use of penalties where VAT or PAYE is not paid by Direct Debit, including whether any penalty should apply on each occasion a payment is not made by Direct Debit, or if penalties should operate on a cumulative basis?

Question 37: What challenges, if any, might arise from having different VAT or PAYE payment dates depending on the payment method used?

Question 38: What other incentives or sanctions could be considered to encourage people to pay VAT and PAYE by Direct Debit?