Direct debits for PAYE will be live on 19 September

Employers will soon be able to pay their PAYE and national insurance liabilities via variable recurring direct debits from HMRC.

As of 19 September 2022, employers will be able to pay PAYE and national insurance contributions via direct debit instead of having to make a single payment. 

Although industry bodies have praised the move, a payroll expert has raised concerns about some of the charges collected on receipt and the possibility of allocation errors. 

Setting up the direct debit

In the Employer Bulletin, HMRC announced the rollout of the new built-in functionality, which will be available through their business tax account and employers' PAYE service or through Pay employers' PAYE.  

New "Set up a direct debit" links will be added to the business tax account and the employers' liabilities and payments screens on the employers' PAYE service when the new variable payment plan is launched. 

Following this, users will be required to set up a direct debit instruction, which will enable HMRC to collect directly from their bank account. The link will change to "Manage your direct debit" once this has been approved. This option will also allow employers to change or cancel their direct debits.  

The Institute of Chartered Accountants in England and Wales’s Tax Faculty has confirmed that the direct debit will never be more than the number declared on the Real Time Information (RTI) returns and can never be more than £20m. According to the faculty, the money will be withdrawn on the 23rd of every month or the next working day - and the employer won't be charged extra for using the plan. 

This functionality, though, will still be restricted to employers only. HMRC said that there is no “scope for agents to do it”. As instructed by the banking rules, agents will still not be able to set up the direct debits on behalf of their clients. 

New functionality questions

Although payroll expert and AccountingWEB commentator Ian Holloway is still unsure if he can recommend this route to clients “given that June’s Bulletin spoke about the possibility of allocation errors if the employer was not quoting the correct payment reference number”.

The payroll consultant was also intrigued that HMRC has built-in functionality to collect direct debit payments as a result of the submission of an Earlier Year Update. “While I accept that some employers may still have to use these for previous tax years, and certainly for tax years up to and including 2017/18, the Earlier Year Update (EYU) is surely one of the least used RTI submissions,” said Holloway. 

Charges collected

While the direct debit payment plan solves many issues, and responds to customer feedback, there will be charges collected on Full Payment Submission (FPS), Employer Payment Summary (EPS), Construction Industry Scheme, Apprenticeship Levy, Class 1A National Insurance and the Earlier Year Update.

After reading the update twice, Holloway also had questions about some of these charges collected on receipt. “Surely, the only charges to be collected are those declared on either the FPS or EPS and I’m unsure as to why Construction Industry Scheme and Apprenticeship Levy are mentioned separately. These are declared by either the FPS or EPS.  If these two are mentioned, why no mention of student and postgraduate loans?”

The Tax Faculty also recommends that employers “monitor [the new service] carefully and check notifications”. But industry bodies have mostly welcomed the move. 

A spokesperson from the Chartered Institute of Payroll Professionals (CIPP) said: “This is a great step forward, and shows how HMRC is trying to be as flexible as possible to support employers, and to keep up with technological advancements. It will be interesting to see, in the coming months, how many employers make use of this functionality, and we hope HMRC will provide figures in this area.”

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