Budget 2026: Payment by Direct Debit for VAT and PAYE from April 2029

In last week’s Budget, the Government announced that it will require businesses to set up a Direct Debit instruction for VAT and PAYE return liabilities from April 2029. However, they will continue to be able to use other payment methods if they pay by the due date. Direct Debit will be used to collect any return liability which remains unpaid at the due date.

The UK Government consulted earlier this year on proposals to require payment of PAYE and VAT liabilities by Direct Debit. We didn’t support the proposal to adopt mandatory payment by Direct Debit in the short term, largely due to concerns raised with us about HMRC’s systems and processes. We highlighted various challenges and barriers to using Direct Debit and suggested possible incentives that might encourage wider voluntary adoption. 

Budget 2026

The summary of responses to the consultation was published alongside the Budget. There were more than 400 consultation responses, including 339 from businesses. Of the total responses received, 80.2% of respondents opposed mandating Direct Debit payment, 14.5% were neutral and 4.3% supported it. 

In its response, the Government “notes concerns about HMRC’s IT systems and amounts paid being reallocated or misallocated”. It also notes comments from agents about the transparency of clients’ accounts and their ability to act on clients’ behalf in some circumstances. Other concerns raised included the interaction of Direct Debit payments with the notification of errors and adjustments. Respondents overwhelmingly opposed penalties based solely on whether payment is made by Direct Debit. The prevailing view was that HMRC should focus on whether payments were made accurately and on time, rather than on whether they were made by Direct Debit. 

In recognition of feedback received, businesses will still be able to pay VAT and PAYE return liabilities using the other payment methods currently accepted by HMRC. However, from April 2029, the government will introduce automated payment by Direct Debit “as a safeguard to collect any return liability which remains unpaid at the due date”. Businesses will be required to set up a Direct Debit instruction for VAT and PAYE payments to HMRC, unless they fall within an exemption. 

If developments in banking and financial services mean that Direct Debit is superseded by an alternative automated payment method before April 2029, the new requirement will be reviewed.

Next steps 

HMRC will work with stakeholders between now and April 2029 to:

• Complete ongoing work to remedy some of the IT issues identified by the consultation, deliver further improvements and review agent services.
• Identify the exemptions that will be needed.
• Encourage early take up of Direct Debit payments.
• Determine what the consequences will be of non-compliance.

The Government has also committed to producing communications and guidance that will provide “good notice of what businesses need to do and when, to help businesses prepare as further details are agreed”. 

Let us know what you think about payment by Direct Debit

We welcome members’ feedback on all aspects of the work HMRC will be undertaking with stakeholders, to inform our contributions to the discussions. Email us to share your views.