Read this blog to understand the pros and cons of the new PAYE direct debit functionality.
The new variable direct debit for PAYE payments is set to start from 3 October 2022.
From this date employers’ will be able to access the direct debit service directly via their business tax account where they will see a new “Set up a direct debit” link.
HMRC will determine how much PAYE tax you owe (based on your HMRC PAYE account) and will process a direct debit payment for this amount.
The PAYE payment will come out of the company account on 23rd of the month following the payroll period.
What happens now?
Currently, employers need to process manual bank payments monthly to cover PAYE payments due to HMRC.
Employers decide how much to pay HMRC based on their payroll reports.
You must pay your PAYE bill to HM Revenue and Customs (HMRC) by the 22nd of the next tax month if you pay monthly.
Why has this change come about?
HMRC taking direct debit payments for tax has worked well for VAT and ensures HMRC receives the correct amount of VAT due on time.
Employers have also requested this functionality be made available to automate PAYE payments via direct debit to prevent any payments being missed and penalties being applied.
Do we have confidence HMRC will take what is due?
Overall, development of this functionality is widely welcomed.
The experience of processing direct debits for VAT payments has been a positive one. However, HMRC still operates very much in silos, with each tax department operating separately from each other. And, unlike the VAT department, PAYE does have a history of misallocating payments and taking time to update their records to show the most recent PAYE payments made.
HMRC have confirmed they will advise employers how much they owe and plan to take via direct debit in advance of requesting the payment.
However, we would need to have confidence that these issues have been resolved before advising clients to move away from submitting their own PAYE payments and moving towards HMRC determining how much PAYE is due.
We’re advising clients to hang fire and see how the new system is working. We have some reservations due to a potted history of HMRC miscoding and misallocating payments, so we would like to let the teething troubles surface and be dealt with first. A few months down the track, if all appears to be working well, we see this direct debit facility being a good thing for employers.
If you have any other tax related questions, please get in touch.