HMRC urged against VAT and PAYE payment measures that would ‘penalise businesses’

An HMRC consultation has put forward a proposal that will make it mandatory for all VAT and PAYE liabilities to be paid via Direct Debit. 

The idea behind this is to improve timeliness, reduce administrative burdens and prevent tax debt; however, concerns have been raised.

New Proposal Unfair on Businesses

The Association of Taxation Technicians (ATT) has argued that HMRC have not provided sufficient evidence to justify these potential changes and that they would end up penalising compliant businesses, simply because they do not use a direct debit.

The ATT also highlighted that many businesses deliberately manage the timing of tax payments as part of their cash-flow processes, and that mandatory direct debits could impose additional burdens and uncertainty on compliant taxpayers while delivering limited benefits.

HMRC should instead focus on targeted interventions aimed at persistent late payers instead of imposing a blanket requirement on all businesses.

HMRC Should Prove Non-Direct Debit Payment Methods Cause Late Payments

Jon Stride, chair of the ATT’s Technical Steering Group, said, “Businesses that pay the correct amount of tax on time should not be penalised simply because they choose a different payment method to what HMRC would prefer.

“The consultation does not provide evidence that mandatory direct debit is the most effective or proportionate way of addressing late payment. Most businesses already pay their VAT and PAYE liabilities accurately and on time using existing electronic payment methods, in line with existing incentives for doing so.

“Before considering penalties, HMRC should be able to demonstrate that non-direct debit payment methods are a significant and direct cause of late payments, and show why less intrusive measures, such as improving awareness and encouraging voluntary uptake, would not achieve the same objective.”

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