Aug 3
HMRC is consulting on making Direct Debit the required payment method for most VAT and PAYE return liabilities. The consultation opened on 23 June 2026 and closes on 16 August 2026. No final policy, start date or detailed exception framework has yet been confirmed.
HMRC estimates that the change could affect around 2.4 million employers, sole traders and companies. There were 2.73 million businesses registered for VAT or PAYE in March 2025, and up to 87% could need to set up a Direct Debit, subject to exemptions and the £20 million Bacs transaction limit.
Once a Direct Debit is established, HMRC would collect the liability shown by the relevant VAT return or PAYE Real Time Information submission. Businesses would no longer need to initiate every payment manually.
| Item | Current position | Position being considered |
|---|---|---|
| VAT | Electronic payment is generally due one month and seven days after the accounting period ends | Direct Debit would normally become required. Under the current facility, collection occurs three days after the due date |
| PAYE | Electronic payment is normally due by the 22nd of the month or relevant quarter | Direct Debit would normally become required. Current collections occur shortly after the 22nd, or four working days after a return filed after the 19th |
| Notice | Depends on the chosen method | HMRC currently gives notice no later than three working days before collection |
| Exceptions | Several payment methods remain available | Possible exceptions include taxpayers without a UK bank account, digitally excluded people, certain filing exceptions and payments above the Direct Debit limit |
| Enforcement | Direct Debit is voluntary | HMRC is considering penalties or limiting later payment deadlines to Direct Debit users |
| Consultation | Not applicable | 23 June to 16 August 2026 |
The full proposals are available on the government’s Direct Debit consultation page.
The change could reduce late or incorrectly allocated payments, but it would also reduce a business’s ability to choose exactly when it initiates payment.
Businesses should not use late VAT or PAYE payments as working capital. HMRC’s current HMRC interest rates show a late-payment interest rate of 7.75% from 9 January 2026. Penalties may also apply, depending on the liability and length of delay.
Where customer delays create the shortfall, review late payment and SME cash flow and consider reforecasting for interest rates and inflation.
HMRC reported that tax debt represented 4.7% of receipts in 2025 to 2026, down from 5.0% in the previous year, and that it resolved almost £102 billion of debt during the year.
Northern Ireland businesses deal with HMRC and would be covered by the UK proposal. In the Republic of Ireland, Revenue currently offers variable Direct Debit for VAT and Employers’ Income Tax through ROS, but it is not the only permitted payment method.
This creates another process for businesses managing cross border payroll between UK and Irish operations. SCC’s cross border accounting and tax team can coordinate payment calendars across connected UK and Irish entities.
Model VAT and PAYE payments using the current Direct Debit timetable. Confirm that the nominated account will contain sufficient cleared funds on the expected collection date. Review who controls filing, treasury and bank mandates, because submitting a return could trigger the payment process.
Businesses should also review Making Tax Digital submission compliance and the financial KPIs every SME owner should monitor. If tax-payment pressure is becoming persistent, consider the warning signs of financial distress and contact HMRC early rather than simply cancelling a mandate.
Speak to SCC Chartered Accountants across the UK and Ireland about a cash-flow review. Support may include SME accounting support, help from recovery accountants who improve cash flow, or a wider business recovery and restructuring plan. Where unexplained transactions or missing funds are involved, a forensic accounting investigation may be appropriate. Get in touch to review your position.
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