PAYMENT OF VAT Direct Debit

Payment by direct debit has important benefits for all Revenue’s VAT customers. Customers who opt to pay by direct debit have the benefit of a single annual return (instead of a return every two months) as well as the advantage of a fixed payment amount each month. If the business is seasonal the direct debit amounts can be varied to suit the particular business.

When paying by direct debit it is not feasible to have an exact match between the debited amounts and the actual VAT liability arising during the course of the year. Revenue recognises this and has applied a reasonable tolerance as regards any balance due with the annual return. Unfortunately, some traders have abused this situation by deliberately underpaying the monthly direct debit amount, giving rise to an unfair cash flow advantage over legitimate traders, and a significant balance due with the annual return. In order to counteract this abuse, legal changes have now been introduced (Sections 194 and 195 Finance Act 2001 amending Sections 19 and 21 VAT Act 1972) governing the amounts that have to be paid when paying VAT by means of the direct debit system.

Customers using direct debit to pay their VAT liability are now legally obliged to ensure that the amounts paid by direct debit are likely to be sufficient to cover the on going liability and, where necessary, to adjust the direct debit amounts to achieve this. Where insufficient amounts are paid by direct debit and, as a result, the balance of tax payable with the annual return is more than 20% of the actual liability for the year, interest is chargeable on this balance from a date six months prior to the due date of the annual return. Where the balance payable is less than 20% of the actual liability for the year and this balance is paid by the due date for the annual return no interest charge will arise.

Where Revenue raises an interest charge because the amount due with the annual return exceeds the 20% ceiling, the customer has the option of having the interest re-calculated as if the direct debit system had not been used (i.e. having regard to the dates that the liabilities would have been payable if the customer had been using the normal bi-monthly returns system and taking into account the payments made during the course of the year).

Practitioners and agents are asked to bring this change to the attention of any of their customers who pay VAT by direct debit. If any customer wishes to change the amount of his/her direct debit mandate, he/she should write, fax (01-6717020) or e-mail (eft-apollo@revenue.ie) to the Collector General requesting the change. The customer should simply state his/her registration number and provide details of the change required.

This latest change has been introduced in the interests of equity to ensure that everyone pays their fair share. Payment by direct debit remains an attractive option for all Revenue’s VAT customers. Anyone wishing to join the system should obtain the relevant leaflet (CG 7 -DD) that explains how the system works and contains the necessary direct debit mandate. The leaflet is available at all Revenue offices, on Revenue’s website (www.revenue.ie/publications/leaflets and guides/collector-general) or can be obtained by phoning 1890 20 30 70.

Any queries in relation to this Article may be addressed to:

Technical Services Section,
Office of the Collector-General,
Sarsfield House,
Limerick

Telephone: 1890 20 30 70