Businesses may face changes to how they pay tax

The government has published a consultation on proposals that will require most VAT-registered businesses and employers to pay VAT and PAYE liabilities by Direct Debit. The aim is to reduce late payment and simplify the payment process.

HMRC consider that automating the payment process by requiring Direct Debit could help businesses to reduce administrative work, minimise errors and avoid missing a payment deadline.

Paying by Direct Debit is already an option available for paying both VAT and PAYE, although most businesses currently pay using other electronic methods.

The government is therefore 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.

HMRC are also considering what measures will be used to encourage uptake of Direct Debit and the sanctions for businesses that don’t comply. Proposals revolve around charging penalties where Direct Debit is not used, or by changing the current extended payment deadlines so that they will only apply to Direct Debit payments.

The consultation closes on 16 August 2026. Further details on the consultation and how to respond can be found here.