In September 2022, we wrote about a new option for employers to pay their PAYE via variable direct debit. The scheme has been available to employers since October 2022 and was intended to be more convenient. Sadly, it has suffered a few teething problems, as HMRC overlooked the interaction with existing automatic notification systems. As a result, employers may see both interest charges showing on their account (which will be reversed if payment is received on the first collection attempt) and also receive inappropriate late payment notifications.

The issue arises due to the interaction of the collection date of the variable direct debit with the deadline for making electronic payment, which is the 22^nd of the next tax month for monthly filers.

Where payment is made by variable direct debit, HMRC first issues an Advance Notification of the amount to be taken. This is issued on the 20^th of the month, or the next working day if that is a weekend or bank holiday. The collection is then taken three days after the notification – or the next working day again if this falls on a weekend. Taking November 2022 as an example, an employer would have received their Advanced Notification on Monday 21 November and had the funds collected on Thursday 24 November.

In the meantime, another part of HMRC’s systems would have determined that, since payment had not been received by the official 22 November date, late payment interest was due and an interest charge would have been automatically added to the employer’s account. A generic, late payment notice would also be issued a few days later.

Fortunately, provided that the direct debit collection is successful at the first attempt, the interest will be removed when the payment is processed by HMRC’s systems. The ‘late payment notice’ may be unnerving, but it is only an information notice, rather than a penalty.

HMRC have acknowledged that employers will find both these issues with the new system unhelpful and potentially confusing. They are working on a fix to their systems, but we are advised it could take some months. In the meantime, employers can still use the variable direct debit facility but will need to be aware of the ‘quirks’ of the system.

Further information from HMRC on setting up a variable direct debit is available on GOV.UK.

This article reflects the position at the date of publication (23 January 2023). If you are reading this at a later date you are advised to check that that position has not changed in the time since.