Proposed HMRC Rule Change Could Penalise Timely Payments
The Government is consulting on plans to mandate that businesses pay their PAYE and VAT liabilities via Direct Debit. Under the proposals, any payment not made by Direct Debit — where no exemption applies — could incur a penalty, even if the payment is made in full and on time. The consultation, which runs until August 16, 2026, aims to cut late payments, reduce debt, and streamline processes.
Accountant Calls Penalty for Correct Payment an 'Oddity'
Harvey Dhillon, founder and CEO of small business accountants Zmartly, said the move to Direct Debit is "for once, a sensible fix" as it prevents errors like wrong references. But he questioned: "When did paying your tax in full and on time become something HMRC could fine you for? That is the oddity in this consultation." He added that a penalty for using bank transfer is "a fine for using the wrong envelope" and urged businesses to set up Direct Debit but tell the consultation that method is not the same as payment.
Business Owners Warn of Cash Flow Problems
Tony Redondo, founder of Newquay-based Cosmos Currency Exchange, warned that mandatory Direct Debit could trigger cash flow issues. He said: "HMRC frames it as efficiency, but businesses use Faster Payments and CHAPS deliberately for cash flow control. A mandatory Direct Debit hands HMRC a preferred creditor's schedule, not yours." He criticised the plan to penalise businesses that pay in full and on time for using the 'wrong' channel, saying it "flips compliance on its head" and treats SMEs like "errant children."
Impact on Reward Points and Credit Card Users
Rob Burgess, founder of London-based Head for Points, warned the changes would be "very handy for HMRC and very inconvenient" for those who want control over payment timing. He noted that people earning rewards points or using credit cards for interest-free credit would be affected, advising them to complete the consultation questionnaire with reasons why Direct Debit is not suitable.
