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How to Set Up VAT Direct Debit for Business

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMar 20222 min read

In the UK, there is a tax embedded in the price of goods and services: VAT. The VAT, or value added tax, has a standard rate of 20%. While about 50% of household items are subject to this tax, items such as children’s clothing, periodicals, and most groceries are not. There’s a discounted VAT placed on some things, like home energy bills, as well. Revenue from VAT represents about 17% of government taxes collected by Her Majesty’s Revenue and Customs (HMRC).

Now that you know a little more about the background of VAT, you may be wondering about your obligations regarding the payment of VAT to the government. More specifically, what are your payment options? Can you set up a VAT Direct Debit, for example? Read on to find out everything you need to know about paying VAT by Direct Debit.

How to pay VAT

VAT can be paid in a variety of ways. For same or next-day payments, pay online or by telephone banking, through your online bank account, or CHAPS. Payments can be made within three days through banks and building societies, online debit or credit cards, Bacs, and Direct Debit. There are a few things to know about paying VAT by Direct Debit. We’ll explore these in a little more detail over the following sections.

What you need to know about VAT Direct Debit

Paying VAT by Direct Debit isn’t an especially complicated process, however, there are a few requirements that you need to be aware of before you get started. First, you must have the following:

A valid email address.
A UK-registered bank account that issues currency in British pounds and will accept Direct Debit instructions.
Enough money in your account to cover the amount due.

In addition, to set up VAT Direct Debit, you must be authorised to sign for the account. If your bank requires two signatories, you’ll need to submit a paper VAT Direct Debit form.

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How to set up VAT Direct Debit

From your HMRC online account, navigate to “VAT account” then “payments and repayments.” From there, select “set up a Direct Debit” to add your bank account information. It’s that simple, and doing so can help to ensure that you never miss a VAT payment.

There are a few more things that it may be helpful to remember about HMRC VAT Direct Debit:

Ensure on-time payment by setting up your VAT Direct Debit at least three days before the return deadline.
Be sure to file your VAT return by the deadline to avoid penalties.
You can cancel your VAT Direct Debit any time by notifying your bank and HMRC.

Additionally, HMRC VAT Direct Debit accounts may be cancelled due to inactivity after 13 months due to the Direct Debit dormancy period rule. If your account is cancelled, penalties and other additional charges must be settled via an alternate payment method.

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