ACCA welcomes the opportunity to provide feedback on this HMRC consultation “Requiring payment of VAT and PAYE - Direct Debit”.
ACCA have consistently noted that the three foundations for a sound tax system are simplicity, certainty, and stability. We understand that HMRC are of the view that making payment simple and reliable will lead to reduced debt. We also note that the government is proposing mandatory direct debits, in most cases, to reduce unnecessary administrative burdens and avoidable costs that arise when payments are late (i.e. penalties and interest). We would highlight that any potential savings in those cases may be offset by the proposed introduction of penalties for those not paying by direct debit where mandated.
ACCA question whether it is appropriate to be prescriptive on payment methods at all. HMRC have acknowledged in the consultation document that ‘a minority submit returns by the deadline but make payments late’. As noted in ACCAs response to HMRC’s Call for evidence on the Tax Administration Framework Review: enquiry and assessment powers, penalties, safeguards ‘ACCA cautions against designing a system overly shaped by the actions of the worst players in the marketplace. The vast majority of taxpayers are honest and compliant, and the system must effectively and efficiently cater to their needs’.
We are concerned about the proposal to mandate payment by direct debit for VAT/PAYE, in most cases, thereby limiting payment options for taxpayers. It would be most unusual for a tax authority to mandate a single payment option, direct debit, for these tax types. A mandatory requirement for the majority to pay PAYE/ VAT by direct debit, allowing HMRC to control the collection of a tax liability automatically could cause many businesses concern. We hear from members that overpayment, incorrect allocation of payments made by HMRC and repayments to businesses are a cause of concern. In many cases these issues result in HMRC considering a tax liability as due when it has already been paid. We therefore have concerns on the practical workings of the system by HMRC and in particular, that HMRC could automatically collect an amount that exceeds the tax liability due.
We would also highlight that HMRC are proposing to limit payment options for taxpayers at a time when cashflow is tight for, and being closely managed by, UK small and medium-sized entities (UK SMEs) to ensure survival. If HMRC proceeds with the proposal to require the majority to pay VAT/ PAYE by direct debit, and then subsequently cannot collect VAT/ PAYE by direct debit, where required, penalties are proposed. These penalties could mean UK SMEs are forced to turn to expensive forms of finance to clear outstanding liabilities (e.g. high interest overdrafts).
While ACCA commends HMRC effort to consider areas where simplification can lead to further efficiencies, we do not support the proposal to make payment by direct debit ‘mandatory’ for VAT and PAYE in most cases. HMRC have acknowledged in the consultation document that ‘late payment is often linked to oversight or payments being allocated incorrectly rather than an inability or unwillingness to pay’. We would note that a payment made on time that is incorrectly allocated by HMRC is not a late payment.
We make the following additional observations:
- It is unclear whether there is evidence to support the assertion that proposals to mandate direct debit, in most cases, will result in a reduction in late payments.
- In addition, there is no acknowledgement of additional cashflow constraints on owner-managed businesses. HMRC must play their part in ensuring leaner working capital models, in owner-managed businesses, are not adversely impacted by a failure on HMRC’s part to make payments due to businesses in a timely fashion. ACCA believe that HMRC should seek to transparently report on timeliness of payments by HMRC to businesses. Where HMRC implement more prescriptive and restrictive requirements around payments of VAT and PAYE on one hand while failing to transparently report on and address timeliness of payments by HMRC to businesses, an inappropriate imbalance is created.
- The rationale for proposals mentions erroneous payment references creating difficulty for HMRC in allocating payments however, this is a separate issue to late payment of taxes. In our view the issue around erroneous payment references could be more appropriately addressed via an information campaign to taxpayers working closely with professional bodies such as ACCA.
- Proposals fail to take account of time to pay arrangements that may be in place and increase the risk of error which could create an additional administrative burden. We would also highlight that the proposed reforms are attempting to address one HMRC priority, closing the tax gap, at the expense of another, the customer experience.
- ACCA does not agree with the proposed removal of the standard deadline extension by seven calendar days, in cases where payments have not been made by direct debit. This extension exists to encourage compliance with the requirement to pay online returns electronically, including by direct debit. We are of the view that changes to long established incentives, that have been the basis of business planning, should be kept to an absolute minimum.
- ACCA disagrees with the introduction of penalties in cases where VAT/ PAYE have been paid in full and on time by a payment method other than direct debit. In our view, once the debt is paid there should not be any negative consequences for the compliant taxpayer owing to method of payment.
- Finally, our recent global quarterly survey of economic conditions (note 1), provides insight into difficulties faced by UK small and medium sized businesses (UK SMEs) in securing prompt payment for Q2 2026. The UK SME sample from Q2 2026 provides current data on the ‘problems securing prompt payment’ index and the ‘increased operating cost’ index. Both indices have risen when compared to Q1 2026. This indicates the payment difficulties experienced by UK SMEs at a time of rising costs. Undoubtedly the impact of late payments is a key factor in the results reported stifling cashflow and growth. This heightens the importance of HMRC’s role in ensuring timeliness of payments to businesses.
- If the government do proceed with the proposals to change longstanding payment arrangements for taxpayers, at the very least, implementation should be done on a phased basis considering the bigger picture, including success or otherwise of the Small Business Protections Bill.
To read our comments in full, please download the document found on this page.
