The Institute of Chartered Accountants in England and Wales (ICAEW) has raised concerns over government proposals that would require businesses to pay VAT and Pay As You Earn (PAYE) liabilities through direct debit.
The ICAEW warned that the move would remove “crucial payment safeguards”, along with the control that companies and employers currently have over their cash flow and internal processes.
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Under the plans, businesses would be required – with certain exemptions – to settle PAYE and VAT obligations via direct debit.
The government says the aim is to cut late payments, curb the build-up of tax debt and simplify the payment process.
In its response to the consultation, the ICAEW said it had substantial concerns about the proposals.
Beyond businesses losing control over their own payments, the institute warned of a real risk of further errors arising if HMRC withdrew incorrect amounts due to inaccuracies in its own data.
The ICAEW also questioned whether HMRC has the capacity to manage the collection and allocation process accurately.
It pointed to existing problems with VAT accounts and the ‘real time information’ system used for PAYE.
The institute added that information on HMRC’s dashboard is often inconsistent between internal departments and for customers. As a result, cross-checking tax and duty amounts remains a time-consuming task for both HMRC and taxpayers.
ICAEW Tax technical manager Adelle Greenwood said: “While we fully support measures to simplify the tax system and reduce the administrative burden and costs to businesses, we do not believe this measure to mandate payments by direct debit would achieve either of these goals.
“It is unsurprising that businesses and employers are opposed to HMRC having the ability to automatically collect payments from their accounts as they need to maintain control over their cash flow and processes.”
The ICAEW said it does not support introducing penalties or sanctions for businesses that fail to pay VAT and PAYE via direct debit. Instead, the institute recommended that HMRC continues to rely on the existing penalty regime to discourage late payment, while promoting its ‘Time to Pay’ arrangements to support businesses facing financial difficulty.
