HMRC Wants VAT and PAYE Paid by Direct Debit — Consultation Now Closed

Written by James Veal

HMRC has opened a consultation that could change how VAT-registered businesses and employers pay their tax bills. The proposal: make Direct Debit the mandatory payment method for VAT and PAYE return liabilities, rather than one option among several.

What’s being proposed

At the moment, businesses can pay VAT and PAYE by Direct Debit, but also by bank transfer, CHAPS, Faster Payments and other methods. HMRC’s consultation, published 23 June 2026, asks whether Direct Debit should become compulsory for most VAT-registered businesses and PAYE employers, with HMRC collecting payment automatically shortly after the return is due — typically around the 22nd of the month, with at least three working days’ notice before collection.

HMRC’s reasoning is that a lot of late payment isn’t down to businesses being unwilling or unable to pay — it happens because a deadline is missed or a payment gets misallocated against the wrong reference. Automating collection is meant to reduce both.

Who could be affected

The consultation estimates around 2.4 million individuals and businesses could be in scope, out of roughly 2.73 million currently registered for VAT and PAYE — so this would touch the large majority of VAT-registered businesses and employers, including sole traders and limited companies. There’s a technical ceiling too: payments above £20 million can’t be collected by Direct Debit under BACS rules, so very large payers would need a separate exception.

This is a consultation, not law — yet

Nothing changes immediately. The consultation ran for eight weeks and closed on 16 August 2026. As of publication, HMRC has not yet published its summary of responses or confirmed next steps. If it goes ahead, businesses would need a UK bank account with a Direct Debit mandate in place before any implementation date, and there’s discussion of penalties or other disadvantages for those who continue paying by other methods once the rules are live. None of that is confirmed yet — professional bodies including the ICAEW have raised concerns about proportionality and flexibility, particularly for businesses with irregular cash flow or no UK bank account.

What to do now

• There’s nothing you need to change today — Direct Debit is already available and optional for VAT and PAYE.
• If you rely on bank transfer or another method for cash flow reasons, it’s worth thinking through now whether automatic collection would cause you problems — HMRC is actively asking for this kind of evidence during the consultation period.
• The consultation has now closed — we’ll update this post as soon as HMRC publishes its response and confirms whether, and when, this will go ahead.

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Want to know how this might affect you?

If you’re not sure how a move to mandatory Direct Debit could affect your VAT or PAYE arrangements, we’re happy to talk it through. PBAS supports sole traders and small businesses across East Lothian, Edinburgh and Scotland with VAT, payroll and general compliance. Get in touch for a free, no-obligation chat →

This article provides general guidance only. Read the consultation in full on GOV.UK, or speak to a qualified bookkeeper.