HM Revenue & Customs (HMRC) is pressing ahead with plans to collect VAT and PAYE payments from businesses by direct debit, despite overwhelming opposition from respondents to its consultation, according to accountancy firm UHY Hacker Young.

More than 80% of the 331 respondents who answered the consultation opposed the proposal, while just 4% supported it. The government's revised plans were confirmed in documents published alongside the Budget.

UHY Hacker Young warned that allowing HMRC to automatically collect large VAT liabilities could leave some businesses short of working capital, increasing financial pressure on already stretched companies.

Although the government has softened its original proposal, businesses will still be required to have a Direct Debit mandate in place for VAT and PAYE payments from 2029. Firms will be able to continue using other payment methods, but HMRC will be able to collect any unpaid balances automatically when they fall due.

According to UHY Hacker Young, which provides accounting, tax, and business advisory services, the changes could be particularly problematic for businesses waiting for payments from large customers.

Sean Glancy, VAT partner, at UHY Hacker Young, said: "The risk of insolvency is not theoretical. VAT bills, which are often quarterly, can be very substantial. They could suddenly remove all a business's working capital.

"Businesses should have reasonable leeway over delaying a payment like VAT, especially if that business is waiting on a payment that has been delayed to them."

The reforms are separate from another Budget measure that would give HMRC greater powers to recover overdue tax debts directly from individuals' bank accounts in certain circumstances.

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