HMRC’s new variable Direct Debit payment plan function is now live but has suffered from teething problems in its first few months. What are the issues and what should accountants be aware of?
In August’s Employer Bulletin, HM Revenue and Customs (HMRC) announced its intention to start taking advantage of variable Direct Debit payment plans. These allow the following charges to be taken after the appropriate return has been submitted to HMRC:
- Full payment submission
- Employer payment summary
- Construction industry scheme
- Apprenticeship levy
- Class 1A National Insurance
- Earlier year update.
Originally slated to be functional from 19 September 2022, this was delayed until 3 October 2022. While no official reason was given for this, it coincided with the state funeral of Her Majesty Queen Elizabeth II.
The functionality is now live, but there have been problems. While we agree that offering this service is a good step forward, if a bit late, it’s a shame there are teething problems. So what are the issues and what do accountants need to be aware of?
What is the issue?
As we all know (I hope), pay as you earn (PAYE) bills must be settled by the 22nd of the month following submission, if you pay monthly (and electronically). However, the new system doesn’t collect the funds until after this date. HMRC’s systems automatically add overdue interest onto the employer’s liabilities and payments account.
These amounts are flagged as ‘Direct Debit will collect’. This has raised employer concerns over interest they feel is undue. Worry not though, as these interest amounts are removed once the payment is processed.
What’s going on?
The first step in collecting funds through the variable payment system is to send a message to the employer within the business tax account — the advance notification. This notification is sent on the 20th of the month or the next available bank working day. Collection will occur three bank working days after the notification has been sent, this means, even at its earliest, funds will always be received by HMRC after the 22nd deadline.
For example, November’s notification was sent on 21 November, the first available bank working day after the 20th, funds were collected on 24 November, three days later. Interest would show on account for 22-24 November but would be removed once funds were received. If funds weren’t received the charge would stand.
HMRC has stated: “As the due date for electronic payment is the 22nd of the month, the charges within the online account will show as overdue and accruing interest may be shown. Once the Direct Debit has been collected, our financial systems will update and reverse any interest for the short period between the 22nd and the date the payment was received. This happens because strictly the charges are overdue until the payment is received. The payment will be credited as though received on or before the Due Date. If the Direct Debit cannot be collected, such as because there were insufficient funds in the bank account, the interest calculated from 22nd will stand.”