The UK Government is consulting on a significant change that could penalize businesses even if they pay their PAYE and VAT on time, simply because they use the wrong payment method. The proposed rule would require businesses to pay these liabilities by Direct Debit, aiming to reduce late payments, minimize debt, and simplify the payment process.
While the move to Direct Debit is meant to streamline payments and cut down errors from incorrect references or periods, some accountants and business owners are raising concerns. Harvey Dhillon, CEO of Zmartly, supports the shift to Direct Debit to reduce administrative errors but finds it puzzling that penalties might apply for using other payment methods when payments are made on time and in full. He describes the threat of fines as illogical and urges businesses to provide feedback during the consultation period, which ends on August 16, 2026.
Similarly, Tony Redondo of Cosmos Currency Exchange highlights potential cash flow issues stemming from mandatory Direct Debit payments. He points out that many businesses use Faster Payments or CHAPS intentionally for better cash flow management, and punishing firms for using their preferred payment methods could disrupt their financial control. Redondo argues this approach unfairly treats small and medium-sized enterprises as “errant school children.”
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Additionally, Rob Burgess, founder of Head for Points, warns that some businesses could lose out on credit card rewards or benefits if forced to switch to Direct Debit. For those who currently earn points by paying VAT or PAYE via card, Burgess recommends responding to the Government consultation to explain why Direct Debit may not be a suitable payment option.
The Government is actively seeking input from businesses and tax agents to better understand the impact of these changes and whether exceptions or safeguards should be included. Awareness and participation in the consultation are crucial for those affected.