ICAEW has responded to the government’s consultation, published in June 2026, on requiring VAT and PAYE liabilities to be paid by direct debit. An earlier article explains the government’s proposal in more detail.

ICAEW’s concerns 

In ICAEW Representation 56/26 (to be published at 2026 Tax Representations | ICAEW in due course), ICAEW has expressed significant concern about the impact the proposals could have on businesses and employers, including that the measure could: 

• Exacerbate existing problems with HMRC systems. ICAEW members report that there are already 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 liabilities offset against other heads of duty. The mandation of direct debit payments could amplify the impact of existing problems within HMRC's systems.
• Interfere with business controls and systems. A business or employer may operate an internal approval process before funds are released to pay a liability, or need to request funds from a different part of the business. A mandatory direct debit scheme would not be compatible with such approval processes, requiring businesses to update controls and processes.
• Cause cashflow difficulties. Collection issues could lead to cash flow disadvantages and increased monitoring requirements for businesses, and particularly for smaller businesses. These include: 
• HMRC collecting an incorrect amount;
• HMRC failing to collect a payment when expected;
• incorrect allocation of payments between liabilities;
• inaccuracies within VAT accounts; and
• difficulties recovering overpayments from HMRC.

Difficulties with direct debit 

ICAEW has also raised a number of practical difficulties with mandating payment by direct debit, including that:  

• agents cannot 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.    

ICAEW’s recommendations 

ICAEW suggests that HMRC continues to use the existing penalty regime to dissuade late payment, and promotes the use of time to pay arrangements to support struggling businesses, rather than proceed with these proposals. Should the proposals go ahead, ICAEW recommends that taxpayers who pay their liabilities in full and on time are not penalised for choosing a payment method other than direct debit.