Consultation deadline passes on mandatory direct debit
HMRC's consultation on requiring VAT and PAYE payments by Direct Debit closed on 16 August 2026. The 8-week consultation, which ran from 23 June, sought views on making direct debit the only permitted payment method for all employers and VAT-registered businesses, with exemptions only for those who meet specific hardship criteria.
Businesses could submit responses online, by email to payeconsultations@hmrc.gov.uk, or by post. HMRC will now analyse responses and publish its formal decision in due course.
Why this matters for your business
Direct debit is already used for many VAT and PAYE payments where the taxpayer has opted in. The difference under the new rules would be that there would be no choice: direct debit becomes compulsory for businesses above certain thresholds.
Currently, when a direct debit is set up, HMRC collects payment automatically three days after the due date. The business receives notification no later than three working days beforehand. The proposal would extend this requirement to all eligible traders and employers.
Profession cautions on cash flow and control
ICAEW has warned that mandatory direct debits could create serious difficulties for cash-generative businesses with variable seasonal cash flow. The concern is straightforward: businesses lose control over the timing of substantial tax payments, which can strain working capital, especially for growing SMEs and seasonal traders.
There is also concern about what happens when HMRC's calculation of the amount to be collected is wrong (a known issue). With mandatory direct debit, corrections and refunds become reactive rather than negotiated.
What to do now
If you have not already done so, ensure your business has robust cash flow forecasting in place. Review your current payment method with HMRC and confirm whether direct debit is already active on your VAT and PAYE accounts.
A professional payroll review and management accounts update can help you understand your seasonal cash flow and prepare for mandatory direct debit rules. Speak to your accountant before the final rules are published later this year.