The UK Government is consulting on new rules that could impose penalties on businesses paying their PAYE and VAT on time—but through the wrong payment channel. The proposal aims to require businesses to settle these liabilities via Direct Debit to improve payment reliability, reduce debt, and simplify processing.
While some accountants acknowledge the benefits of Direct Debit in minimizing errors like incorrect references or timing mistakes, the prospect of fines for using alternative payment methods has raised eyebrows. Harvey Dhillon, CEO of small business accountants Zmartly, described the proposal as an “oddity” because it would penalize businesses that pay fully and promptly simply for not using Direct Debit.
The consultation, open until August 16, 2026, seeks feedback regarding potential safeguards and exceptions. The Government recognizes some businesses may face cash flow management challenges transitioning to Direct Debit and stresses the importance of consultation responses to inform policy development.
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Business owners are vocal in their criticism. Tony Redondo of Cosmos Currency Exchange warns that mandating Direct Debit could disrupt cash flow management since many companies deliberately use Faster Payments or CHAPS for control. He argues that penalizing businesses for choosing a “wrong” payment method unfairly treats companies like “errant school children,” punishing compliance rather than non-payment.
Rob Burgess, founder of loyalty program Head for Points, highlights practical downsides, including losing opportunities to earn rewards points from card payments and interest-free credit periods. He encourages affected businesses to participate in the consultation with reasons why Direct Debit might not suit their operations.
In summary, while the Government’s intent is to streamline tax payments and reduce errors, the potential penalties for using payment channels other than Direct Debit have sparked significant unease among accountants and business owners alike.