Millions of British businesses could face HMRC penalties for paying VAT and PAYE by bank transfer rather than Direct Debit under Treasury proposals, according to a dossier seen by this paper. The plans, which are now on the Chancellor's desk, would make Direct Debit the default payment method, allowing HMRC to withdraw funds directly from bank accounts on the day payment falls due.
Under the proposals, anyone paying via a traditional bank transfer would have to request an exemption or risk a penalty, even if every penny arrives on time, the Conservatives say. Analysis suggests an estimated 2.4 million employers, sole traders and companies would be caught in the Treasury snare.
Chancellor weighing up plan ahead of Budget
Chancellor John Healey is reported to be considering the plan ahead of his first Budget this Wednesday. This is despite HMRC's own consultation stating that a penalty "could apply even if the payment is otherwise made in full and on time".
A dossier seen by this paper reveals officials are asking whether firms should be fined "on each occasion a payment is not made by Direct Debit". Yet the same document concedes that "most taxpayers pay in full and on time", and that late payment "is often linked to oversight".
HMRC cannot say how much the scheme would raise. Its estimate of the cash impact is blank for every year, marked "yet to be confirmed".
Experts and banks object to the plan
Firms could also be stripped of the extra days they get for paying electronically, which would drag the PAYE deadline for bank transfers back from the 22nd of the month to the 19th.
Experts have criticised the plan. The Institute of Financial Accountants said it "strongly objects" to fining firms that have already paid on time. Jon Stride, of the Association of Taxation Technicians, said such businesses "should not be penalised simply because they choose a different payment method".
UK Finance, which speaks for the banks, told HMRC it "has not demonstrated that mandatory Direct Debit is a proportionate response".
Political reaction and official response
Shadow Chancellor Andrew Griffith said: "Penalising hard-working people for paying their tax on time is a new low from Labour. HMRC should not be allowed to directly raid bank accounts by default."
Treasury minister Dan Tomlinson told Parliament in July that "no decisions have been taken" on any future enforcement regime. An HMRC spokesperson said: "We launched this consultation so we could listen to the views of businesses and other stakeholders, as our aim is to reduce admin and debt caused by late payments and errors. All responses are being considered before the government makes any decisions."
