The Institute of Chartered Accountants in England and Wales criticises the government’s proposal to mandate VAT and PAYE payments via direct debit, citing potential cash flow issues and operational challenges.
The Institute of Chartered Accountants in England and Wales has warned that government plans to require businesses to pay VAT and PAYE by direct debit could undermine cash flow management and create new compliance risks.
In its response to a consultation that closed on 16 August, the institute said the move would hand HM Revenue and Customs too much control over company bank accounts and could lead to incorrect collections if HMRC data is flawed. The ICAEW also pointed to long-standing operational problems, including misallocated payments, unexplained adjustments and inconsistencies on internal dashboards, as well as practical issues such as software reference mismatches and BACS payment limits.
Adelle Greenwood, tax technical manager at the ICAEW, said businesses already want simpler tax processes, but argued that a blanket direct debit mandate would not achieve that goal. She said most taxpayers already file and pay on time, while a smaller group of persistent late payers could be encouraged to use direct debit voluntarily. Greenwood added that forcing all VAT-registered businesses and employers into the system would mean major changes to approval processes and would remove the ability to control the timing of internal transfers.
The government set out the proposal in June as part of HMRC’s wider effort to reduce late payment, prevent tax debt and simplify administration. According to the consultation documents, officials wanted views on the case for mandating direct debit, possible exemptions and the practical barriers to implementation. The ICAEW has instead urged ministers to keep existing late-payment penalties and support arrangements, rather than penalising businesses that choose not to adopt direct debit.
Disclaimer: This article is intended to inform and educate, not to recommend or endorse any financial product, investment or strategy. Please consider your own financial circumstances and seek professional advice where appropriate before making financial decisions.
