The government has proposed that businesses will be required (subject to some exceptions) to pay their PAYE and VAT liabilities by direct debit. The aim is to reduce late payment, limit the flow of debt and simplify payment processes.

In its response to the consultation, ICAEW said it had substantial concerns about the proposals and warned that in addition to businesses losing control over their payments, there was a real risk of further errors and inaccuracies arising due to HMRC drawing an incorrect amount as a result of HMRC holding inaccurate data.

The Institute also raised concerns related to the ability of HMRC to manage the collection and allocation process accurately and effectively. This is because there are currently too many errors on customer VAT accounts and under ‘real time information’ for PAYE, including the misallocation of amounts, figures adjusted with no audit trail and tax due offset against another type of duty. Furthermore, information on HMRC’s dashboard can be inconsistent between internal departments and for customers, therefore cross-checking tax and duty amounts is a time-intensive and laborious task for both HMRC and customers.

Additionally, ICAEW raised practical concerns with the plans, as currently tax agents are unable to set up direct debits on behalf of taxpayers, current PAYE references are not compatible with the direct debit scheme, payment caps may make larger payments impossible and direct debit schemes can be automatically terminated after periods of dormancy.   

Adelle Greenwood, ICAEW Tax Technical Manager, said: “While we fully support measures to simplify the tax system and reduce the administrative burden and costs to businesses, we do not believe this measure to mandate payments by direct debit would achieve either of these goals. It’s unsurprising that businesses and employers are opposed to HMRC having the ability to automatically collect payments from their accounts as they need to maintain control over their cash flow and processes. 

“HMRC acknowledges that most taxpayers already pay in full and on time, and only a minority submit tax returns by the deadline but make payments late. Consistent late payers may be encouraged to make use of the direct debit option, where it would resolve operational issues, but imposing a direct debit scheme for all VAT registered businesses and employers is a disproportionate response.

“For many businesses this would mean significant changes to their approval and authorisation processes and remove the autonomy they have to manage their cash flow and transfers of funds internally.” 

ICAEW added that it did not support the implementation of a penalty regime or other sanctions for not making payments of VAT and PAYE by direct debit. The Institute recommended HMRC should instead continue to use the existing penalty regime to dissuade late payment and promote the ‘Time to Pay’ arrangements to support struggling businesses.

ENDS

Notes to editors: