HMRC wants to make Direct Debit the required way to pay VAT and PAYE return liabilities. A consultation published on 23 June 2026 sets out how that could work and closes on 16 August 2026. It is not law yet, and no start date has been confirmed.
If the plan goes ahead, most VAT and PAYE liabilities would be collected automatically from your business bank account after you file, rather than paid manually each time. HMRC estimates that around 2.4 million individuals, employers, sole traders and companies could be affected.
The idea was announced at the Autumn Budget 2025 and fits HMRC’s wider push to reduce late payment, payment errors and wrongly allocated references. Most taxpayers pay in full and on time, but HMRC says some submit returns by the deadline and then pay late, creating avoidable late payment penalties, interest and admin.
What is actually being proposed
At the moment, VAT and PAYE can be paid by several approved methods, including bank transfer, debit card and Direct Debit. Some PAYE payments can also still be made by cheque or at a bank or building society, although electronic payment is already required for larger employers. The consultation proposes making Direct Debit the required payment method for VAT and PAYE return liabilities, subject to defined exceptions.
Once a Direct Debit is set up, HMRC collects the amount due based on the return submitted. For payroll, this sits alongside existing National Insurance and Real Time Information duties, so keeping your payroll services tidy matters more than ever. The same logic applies to Making Tax Digital for VAT, where digital filing and payment discipline already sit close together.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
| Tax | When collection happens under current Direct Debit rules | Notice HMRC gives you |
|---|---|---|
| VAT | 3 working days after the payment due date, once the return is filed | No later than 3 working days before collection |
| PAYE | Shortly after the 22nd of the month, or 4 working days after filing if filed after the 19th | No later than 3 working days before collection |
| Quarterly PAYE | Shortly after the 22nd of the month following the end of the tax quarter | No later than 3 working days before collection |
The cash flow question
This is where owners tend to pause. Say you file your VAT return and the bill is £9,400. Under Direct Debit, HMRC would collect that sum automatically on the relevant date, whether or not a large customer has paid you yet. You lose some of the timing choices businesses currently use near a payment deadline.
For most firms, HMRC expects the impact to be limited. Its consultation says the measure could have a negligible impact on potentially 87% of businesses, excluding those over the £20 million Direct Debit threshold. The pressure is more likely to fall on firms with tight margins, seasonal income or project-based work. If your receipts are lumpy, it is worth reviewing how you forecast your cash flow before any change lands. That is where a dedicated sole trader accountant or small business adviser can make a practical difference.
Who is likely to be exempt
Some groups would sit outside the rule. Overseas businesses without a UK bank account may not be able to use the UK Direct Debit scheme. Very large payments are also limited because the BACS Direct Debit scheme caps collections at £20 million. HMRC has also flagged possible exceptions for digitally excluded taxpayers, including people affected by disability, age, remote location or religious belief.
The consultation also asks whether penalties or incentives should apply. One idea is a penalty where a taxpayer does not pay by Direct Debit, even if they otherwise pay in full and on time. Another is to reserve certain electronic payment deadline extensions for Direct Debit users only. These are proposals for comment, not final rules.
What you can do now
You do not need to change your payment setup today, but preparation helps. Check that your business bank account supports Direct Debit, confirm your VAT and PAYE references are correct, and keep your returns accurate and on time. If you want to shape the outcome, you can respond to the HMRC consultation before 16 August 2026.
A good VAT return accountant can handle the admin and flag anything that affects your VAT registration. Clients near our Reading office often ask us to review these changes early, which is exactly what a good accountant does.
Frequently asked questions
Is paying VAT by Direct Debit mandatory now?
No. HMRC is consulting on making Direct Debit mandatory for VAT and PAYE return liabilities. Nothing changes until the government decides and any rules are introduced.
Can I still pay VAT by bank transfer if this comes in?
For most businesses, Direct Debit would become the required method. Other electronic methods may remain available where an exception applies.
Will Direct Debit change my payment deadline?
Possibly. HMRC is considering whether some deadline extensions should apply only to Direct Debit payments.
What if my business has no UK bank account?
You may fall outside the rule if you cannot use the UK Direct Debit scheme.
Get ahead of the change
If you would rather not track another set of rules, we can take VAT and payroll off your plate. Speak to the Slough accountants at Asmat & Co and we will get you ready before anything becomes mandatory. Book a call today.
Need Help With Your Accounts Or Tax?
Whether you need support with self assessment, VAT returns, payroll, bookkeeping, CIS, company accounts or corporation tax, Asmat & Co Accountants can provide clear, practical advice for your business or personal finances.
