Requiring payment of VAT and PAYE — Direct Debit

Question 1

Summary

Accepted Answer

Subject of this consultation

The government announced at Autumn Budget 2025 that it would consult on improving the timeliness of Pay As You Earn (PAYE) and Value Added Tax (VAT) payments through requiring payment of these liabilities by Direct Debit.

Scope of this consultation

The government is seeking views on plans to require businesses to pay their PAYE and VAT return liabilities by Direct Debit, with the aim of reducing late payment, limiting the flow of debt and simplifying the payment process to reduce error.

Your responses will help inform the scope of future changes and whether safeguards are needed as well as exceptions from paying by Direct Debit for certain taxpayers.

Who should read this

The government invites views from any individual, business or organisation who could be affected by changes to the way VAT and PAYE return liabilities are collected. The consultation will also be of interest to tax agents, representative bodies, software providers, charities and other voluntary organisations that help people with their tax affairs.

Duration

The consultation will run for 8 weeks from 23 June 2026 to 16 August 2026.

Lead official

The lead officials for this consultation are A.Hurst and A. Penny of HMRC.

How to respond or enquire about this consultation

You can respond to this consultation by 16 August 2026, by submitting this online form or by sending an email to payeconsultations@hmrc.gov.uk or posting responses to:

Anne Hurst
Liverpool Regional Centre
8A, India Buildings
31 Water Street
Liverpool
L2 0RD

Partial responses will be accepted.

HMRC will publish a summary of responses as soon as possible after the consultation period closes. Responses to the consultation will be used to inform the implementation of any future policy changes over required method of payment for PAYE and VAT returns.

Additional ways to be involved

HMRC welcomes engagement with a wide range of stakeholders and can facilitate discussions to support input from taxpayers, intermediaries, and representative bodies.

If you would like to discuss any part of this consultation, please contact HMRC using the email or postal address provided above.

Getting to this stage

Following Spring Statement 2025, HMRC updated its guidance to list payment by Direct Debit as the primary method to make it easier for businesses to pay what they owe on time. However, this has not led to a material increase in payment by Direct Debit.

Previous engagement

HMRC has not consulted on this measure before.

Question 2

1. Executive summary

Accepted Answer

Unpaid tax liabilities create costs for taxpayers and HMRC. Preventing debt — by making payment simple and reliable — is therefore central to the government’s approach to improving compliance and closing the tax gap. Paying tax should be as straightforward as possible.

Whilst most taxpayers pay in full and on time, a minority submit returns by the deadline but make payments late. HMRC analysis suggests that late payment is often linked to oversight or payments being allocated incorrectly rather than an inability or unwillingness to pay.

Paying VAT and PAYE is often a manual process. Taxpayers must track deadlines, initiate each payment, and ensure the correct tax reference number is used.

Where payments are late, this can lead to penalties and interest, and follow-up contact with HMRC. This can cost businesses additional time managing their tax affairs.

The government considers that requiring payment by Direct Debit could be an effective way to reduce unnecessary administrative burdens and avoidable costs. Direct Debit is a well-established way to make regular payments. Once set up, Direct Debit can support a more automated payment journey after a return is submitted, supporting a ‘right first time’ approach.

The government is therefore consulting on making Direct Debit the required method of paying VAT and PAYE, subject to any necessary exceptions. This consultation will help the government design an approach that is effective and proportionate. We are seeking evidence on:

the benefits respondents expect to see (including automation and reduced administrative burden)
practical barriers and implementation issues (including bank account constraints, cash‑flow management and process change)
where exceptions or alternative arrangements may be needed

This consultation covers the following:

Chapter 2: outlines the context and rationale for considering requiring Direct Debit as the payment method for VAT and PAYE.

Chapter 3: sets out questions about the respondents to the consultation, to help understand the context of the views expressed.

Chapter 4: discusses potential approaches to implementing Direct Debit for VAT payments and seeks feedback on possible exceptions as well as challenges taxpayers may encounter when transitioning to this payment method.

Chapter 5: considers similar implementation options for PAYE and seeks views on any challenges or considerations specific to that regime.

Chapter 6: outlines ideas to encourage compliance with Direct Debit payment and considers possible incentives and sanctions.

The government acknowledges that some businesses may face challenges in paying by Direct Debit, such as managing cash flow and adapting to new processes. The feedback from this consultation is crucial and will directly inform the government’s approach, shaping both the design and scope of potential future changes.

Question 3

2. Introduction

Accepted Answer

The government is committed to reducing late and unpaid tax liabilities. HMRC’s Transformation Roadmap sets out our objective to close the tax gap and how making process and policy changes will help achieve that outcome.

HMRC’s published Tax Debt Strategy sets out four pillars, or the ways in which the volume and value of tax debt will be minimised. One of the four Pillars is to ‘Prevent Tax Debt’ which is about ensuring payment is as simple as possible for taxpayers, including payment methods.

Most taxpayers pay in full and on time and those taxes help fund vital public services. However, HMRC continues to see cases where returns are submitted but payments are made late often resulting in follow up contact, late payment penalties and interest. While most VAT and PAYE debts are resolved within three months, late payments create avoidable costs and disruption for both taxpayers and HMRC.

At the moment, VAT and PAYE payments can be made in several ways as set out in chapter 4 and chapter 5. Direct Debit is the government’s preferred way for businesses to pay VAT and PAYE and is already used widely for regular payments including household and commercial bills and other recurring financial obligations.

By automating payment after a return is submitted, Direct Debit removes the need for taxpayers to set up each payment or enter payment references, helping reduce avoidable late payments and incorrectly allocated payments.

This consultation asks for views on the government’s proposal to require most VAT and PAYE payments to HMRC to be made by Direct Debit. The government wants to understand how this proposal would affect taxpayers. If introduced, Direct Debit would normally be the default method of payment, unless an exception applies.

Question 4

3. About you

Accepted Answer

Businesses, organisations and individuals may have different views. These questions will help us understand the context for your answers.

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:

number of employees in your business (select the relevant option)

less than 20

20 - 249

250 or more

annual turnover: (select the relevant option)

Less than £90,000

£90,000 to £499,999

£500,000 to £999,999

£1million to £9million

£10million to £200million

More than £200million

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 relevant option)

less than 12 months
1 to 5 years
5 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 5

4. Direct Debit for VAT

Accepted Answer

A considerable number of VAT-registered businesses pay by Direct Debit. However, most VAT payments are still made using the following methods:

bank transfer (Faster Payments, BACS, or CHAPS: online or mobile banking)
debit or corporate credit card (via HMRC’s online BillPay service)
standing order (only for Annual Accounting Scheme or Payments on Account)
cheque or cash at a bank or building society for businesses approved to make paper returns (requires a paying-in slip from HMRC)

Most businesses submit VAT returns quarterly. Payment is due one calendar month after the end of the accounting period. Provided a return is submitted electronically, an additional 7 day extension applies to payment of liabilities arising from the same return by electronic means.

Once a direct debit is set up through the VAT online account, the payment is collected three days after the due date and HMRC notify businesses of the date and amount of the Direct Debit payment no later than 3 working days before the payment is collected.

The government wants to understand why some businesses who could use Direct Debit choose to pay by other electronic methods, and what the impacts would be if Direct Debit were required for VAT payments.

If you are not currently required to pay your VAT electronically, proceed to question 16. Payment on Account payers, should proceed to question 20.

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?

Scope and exceptions

The UK Direct Debit scheme can only be used with UK bank accounts. Businesses without a UK bank account, including those based overseas, cannot pay by Direct Debit.

Currently, VAT legislation limits the obligation to pay electronically to those who must submit VAT returns online. People who are excepted from online filing are therefore not required to pay electronically, including by Direct Debit.

Exceptions to online filing are set out in regulation 25A(6) of the VAT Regulations 1995. These include:

members of religious societies or orders whose beliefs are incompatible with electronic communications
people subject to certain insolvency procedures
people for whom it is not reasonably practicable to file electronically, for example because of disability, age, remote location, or other valid circumstances

The government is seeking views from people who fall under these exceptions to understand how collecting VAT by Direct Debit may impact their business processes and personal circumstances.

This consultation does not cover the position of businesses undergoing insolvency. This reflects existing arrangements, under which insolvency practitioners submit returns outside the electronic returns process.

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 VATC9 form or on your online VAT account and currently pay VAT by Direct Debit:

comment on benefits of this method, if any, you have experienced
comment on drawbacks of this method, 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 disproportionately affected? If so, please explain how.

Extending mandatory payment by Direct Debit to Payments on Account

VAT Payments on Account (POA) apply to businesses with an annual VAT liability exceeding £2.3 million. Under this provision, taxpayers must make 2 payments towards their VAT bill at the end of months 2 and 3 of each quarterly period, with the final balance due alongside the VAT return in the month following the end of the period.

VAT POA taxpayers are required to pay HMRC by electronic means, but the standard 7-day extension for paying electronically does not apply. Currently, there is no facility to make payments on account or balancing payments by Direct Debit for POA taxpayers.

Direct Debit payments are limited to £20million by the BACS payments scheme, which underpins the Direct Debit scheme. Therefore, if mandatory use of Direct Debit for VAT payments is introduced, payments over a certain threshold will be excepted. Other methods of electronic payment would remain available for those impacted.

The government is seeking views from businesses who make VAT POA, to understand how collecting VAT by Direct Debit may impact their business processes, with the exception of cases where the tax liability exceeds £20million. If you are not a business that is required to make POA, please skip these questions.

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 £20million within a tax year please explain the typical range, frequency of fluctuation under and over £20million and why this varies?

Question 6

5. Direct Debit for PAYE

Accepted Answer

An increasing number of PAYE-registered businesses now pay by Direct Debit. Once a Direct Debit is set up through the business’s HMRC online account, HMRC automatically collects the payment based on the amount in the PAYE Real Time Information (RTI) return.

Currently, PAYE legislation requires employers with at least 250 employees (‘large employers’), to pay via a range of electronic means including Direct Debit. Other taxpayers are not obliged to pay electronically.

PAYE payments can be made as follows:

Direct Debit
bank transfer (Faster Payments, BACS, CHAPS: online or mobile banking)
debit or corporate credit card (via HMRC online)
cheque by post (must arrive by the 19th of the month)
at a bank or building society

Direct Debit collection occurs shortly after the 22nd of the month or 4 working days after the return is filed (if filed after the 19th of the month). For PAYE taxpayers who pay quarterly rather than monthly, the Direct Debit is collected shortly after the 22nd of the month following the end of the tax quarter to which the payment relates. HMRC notify employers and pension providers of the date and amount of the Direct Debit payment no later than 3 working days before the payment is collected

Despite the availability of Direct Debit, the majority of PAYE payments continue to be made using other electronic means such as BACS, CHAPS, Faster Payments via online or telephone banking and online payment via a debit or corporate credit card. These are approved HMRC payment methods but require employers and pension providers to initiate each payment individually.

The government wishes to understand why some businesses who could use Direct Debit choose to pay by other electronic methods, and what the impacts would be if Direct Debit were required for PAYE payments.

The government is seeking views from all those who make payments of PAYE to HMRC.

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 have helped 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 with 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?

Scope and exceptions

If mandatory use of Direct Debit for PAYE payments is introduced, the government would most likely extend the obligation to pay by this method to all employers unless they are covered by any further exceptions.

Further exceptions may be appropriate to paying by Direct Debit, including for those who are digitally excluded due to reasons including but not limited to religious beliefs, disability, age or remote location.

Direct Debit payments are limited to £20million by the BACS payments scheme, which underpins the Direct Debit scheme. Therefore, if mandatory use of Direct Debit for PAYE payments is introduced, payments over a certain threshold will be excepted. Other methods of electronic payment would remain available for those affected.

The government is seeking views from those who may fall under any exceptions due to being digitally excluded or other reasons.

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 £20million?

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

Question 35: If yes to 33, what is the lowest regular payment you have made in the past 3 years?

Question 7

6. Incentives to encourage uptake and sanctions for non-compliance

Accepted Answer

This chapter sets out the government’s early thinking on how to encourage compliance if paying VAT and PAYE by Direct Debit becomes mandatory. We welcome views on whether the approach would be effective, and whether it would be reasonable and proportionate.

The proposals fall into 2 broad types:

a penalty where a payment is not made by Direct Debit (and the payer is not excepted). A penalty could apply even if the payment is otherwise made in full and on time
a timing incentive, for example by restricting existing payment deadline extensions so that they apply only to payments made by Direct Debit

How the timing incentives could work

for PAYE, payment by cheque is due by the 19th of the month, while electronic payments have an extended deadline of the 22nd of the month (or end of the quarter for quarterly payers). An option could be to limit this extension to Direct Debit only
for VAT, a 7 day extension applies to a return payment made by electronic means where a return had been submitted electronically. One option would be to limit these extensions to Direct Debit only, to encourage Direct Debit over other electronic payment methods

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 payment of VAT and PAYE by Direct Debit?

Question 8

7. Assessment of Impacts

Accepted Answer

Exchequer impacts are yet to be confirmed.

Year	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030	2030 to 2031
Exchequer impact (£m)	-	-	-	-	-	-

Impacts

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

This measure will impact an estimated 2.4 million individuals (employers or sole traders) and companies by mandating them to set up a Direct Debit for VAT and PAYE payments. These individuals would need to sign up and pay via Direct Debit.

This measure is not expected to impact on family formation, stability and breakdown.

This measure is expected overall to have no impact on customer experience of dealing with HMRC as the change requires them to set up a Direct Debit.

There will be an impact for taxpayers who don’t currently have a current account set up that supports Direct Debit. This is likely to be a small minority, as all the main UK banks do offer accounts compatible with Direct Debit.

The cost to the taxpayer in opening a bank account and paying by Direct Debit will be dependent on their own bank arrangements. HMRC do not charge taxpayers for paying by Direct Debit.

Equalities impacts

An individual may be affected by this measure regardless of their protected characteristics. If a protected group is overrepresented in this population, then they will be disproportionately impacted. HMRC does not currently hold data on the protected characteristics of individuals impacted by this measure and so cannot assess the impacts on those with shared protected characteristics.

In the absence of data on the self-employed population who are registered for VAT or PAYE, the overall self-employed population was assessed to determine if any protected groups are overrepresented. Where this is the case, it is likely they are also overrepresented in the taxpayer group impacted by this measure and therefore there may be a disproportionate impact. However, estimates are uncertain.

The self-employed population is generally of a typical working age, though is estimated to be older than the employed population with more individuals aged 55+. Males are estimated to be overrepresented (62%) compared to the UK adult population in general (50%). Individuals from the ethnic group ‘any other White’ ethnic background are estimated to be overrepresented in the self-employed population (9%) compared to the UK adult population (6%). Where data were available no other protected groups were estimated to be overrepresented in the self-employed population.

Once the consultation responses have been received and analysed, if major disproportionate impacts are highlighted, then a full equality impact assessment may be carried out.

Impact on businesses and Civil Society Organisations

The number of businesses registered for VAT and PAYE as of March 2025 was 2.73 million. Those impacted will be those who do not currently pay by Direct Debit. This measure will have a negligible impact on potentially 87% of businesses (less those over the maximum £20million threshold) by requiring them to set up a Direct Debit for PAYE and VAT. They will be required to sign up and pay via Direct Debit.

Those without Direct Debit banking facilities may need to pay for them to meet the requirements, however it is not expected there will be a significant administrative burden to do this.

If taxpayers have business bank accounts, there may be an additional fee associated with paying electronically, including by Direct Debit. This is dependent on the banking provider but is either very low or free.

The measure is not designed to disproportionately impact specific sectors; its broad scope means it will affect all sectors equally. However, due to the inherent characteristics of certain sectors, some may be more or less likely to qualify for exceptions. As a result, these sectors could experience a greater relative impact from the change. According to ONS data (2024): Construction, Motor vehicles (repair and selling) and scientific or technical account for 43.9% of all PAYE/VAT registered business. Although, they still might not be the most impacted sectors as we have no further data to confirm.

One off costs could include familiarisation with the change, registering for banking facilities and maybe upskilling staff as a result of the change. There may be ongoing costs, but these are anticipated to be negligible.

This measure is not expected to disproportionately impact civil society organisations.

This measure is expected overall to improve businesses experience of dealing with HMRC as it will eliminate erroneous missed payments and administrative errors e.g. incorrect payment reference or period. It will also save them time: e.g. reducing the need to call to correct errors, making manual payments and appealing late payment penalties/interest.

Impact on HMRC or other public sector delivery organisations

HMRC will need to make changes to its IT estate, and the complexity of those changes will depend on the scope of mandation. This will be worked though as options develop and the full impacts on HMRC will be determined following this consultation.

Other impacts

No other impacts have been identified.

Question 9

8. Summary of consultation questions

Accepted Answer

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:

number of employees in your business (select the relevant option)

Less than 20
20 - 249
250 or more

annual turnover: (select the relevant option)

less than £90,000
£90,000 to £499,999
£500,000 to £999.999
£10million to £9million
£10million to £200million
more than £200million

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
1 to 5 years
5 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 do 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 VATC9 form or on your online VAT account and currently pay VAT by Direct Debit

comment on 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 £20million within a tax year please explain the typical range, frequency of fluctuation under and over £20million 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 would have 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?