Although direct debit is the government’s preferred way for businesses to pay VAT and PAYE, many businesses choose to make payments using other methods.

The government believes that, by automating payment after a return is submitted, direct debit has the benefits of “reducing late payment, limiting the flow of debt and simplifying the payment process to reduce error”. Therefore, as announced at the Autumn Budget 2025, the government intends to require businesses to pay their PAYE and VAT return liabilities by direct debit from a date to be confirmed, subject to limited and specific exceptions.  

The consultation document explains how the measure is expected to work and seeks views on a number of areas, including: 

• why businesses who can use direct debit choose to pay by other electronic methods;
• the impacts of requiring direct debit for VAT and PAYE payments, including practical barriers and implementation issues; and
• the need for exceptions or alternative arrangements should businesses be required to pay VAT and PAYE by direct debit. 

The consultation document also sets out the government’s early thinking on how to encourage compliance if paying VAT and PAYE by direct debit becomes mandatory. The proposals include: 

• Charging a penalty. The penalty could apply where a payment is not made by direct debit, regardless of whether it is paid in full and on time.
• Providing a timing incentive. For example, the existing payment deadline extensions, including the VAT 7-day extension applying where the payment is made, and the return is submitted electronically, could be restricted to payments made by direct debit.