Marie Sherlock (Dublin Central, Labour)
- To ask the Minister for Finance the reason the Revenue Commissioners have ended the annual VAT filing facility for micro SME’s with the introduction of a variable direct debit facility; if he accepts that this will increase business administration costs for small firms that are ordinarily tax compliant; and if he will make a statement on the matter. [31527/25]
Paschal Donohoe (Dublin Central, Fine Gael)
I am advised that Revenue is currently modernising its Direct Debit Scheme to bring it in line with standard industry practice, and in preparation for a wider modernisation of its payment and banking processes, which is intended to happen over the coming years.
Revenue is moving away from the Fixed Direct Debit (FDD) scheme for payment of VAT liabilities, whereby the taxpayer pays an estimated amount each month in addition to a final balancing payment when an annual VAT return is filed after the 12-month period.
The more standard payment option of Variable Direct Debit (VDD) is being introduced by Revenue for VAT payments, whereby the taxpayer authorises Revenue to automatically collect the balance outstanding when it is due. This ensures that the taxpayer always pays the right amount at the right time and avoids the risk of interest arising on late payments. The move to VDD for VAT necessitates a change in filing frequency from an annual to a bi-monthly basis.
Revenue have confirmed to me that there are a number of the benefits that bi-monthly filing, along with the VDD payment option, which will deliver for many businesses For example:
Ability to avail of approved VAT credits as soon as they arise in the year, which can either be repaid or be used to reduce the balance owing. This is not possible under the current FDD payment option, whereby any credits or refunds due can only be processed after the year has ended, when the annual VAT return is filed, and the balancing payment paid in full.
Greater certainty and visibility of the correct VAT position earlier in the tax year when filing takes place every 2 months, as liabilities arise for payment.
Reduced payment frequency, as a maximum of six payments per year are required (and only when there is an outstanding balance due for a period), instead of 12 monthly payments as part of the FDD scheme.
Provision for timely and automated payment with the balance outstanding collected automatically by Revenue on the due date every 2 months, requiring no balancing payments.
Elimination of the need for estimation of VAT liabilities and follow up action by the taxpayer. The FDD scheme and annual filing places the onus on the customer to ensure they make sufficient payments throughout the year. Where insufficient amounts are paid by Direct Debit and there is a balance of tax payable at the end of the accounting year, interest is payable if the balance is not paid by the due date. In addition, if the balancing amount due exceeds 20% of the annual liability for VAT, the interest will be backdated to the mid-point of the accounting year. This risk is eliminated with the new VDD scheme and bi-monthly filing.
It is important to note that there is a requirement on all businesses to keep their books and records up to date, regardless of their filing frequency.
A correspondence campaign to VAT taxpayers, highlighting the planned changes including the change in filing frequency, commenced in April 2025. As part of this campaign, 11,000 letters were issued. This will be followed by tailored letters to VAT taxpayers, which will highlight the actions required both by Revenue and the taxpayer to change over to VDD. These tailored letters will issue on a rolling basis up to April 2026, as the customer’s annual VAT period ends.
By way of information, earlier this year, Revenue completed work to transition employers from FDD to VDD for the payment of Employers Income Tax/USC/PRSI/LPT taxes. The FDD payment option for employers is now ceased with most employers now favouring VDD as a payment option.
Notwithstanding these changes however, Revenue has confirmed to me that it fully appreciates the continuing need to reduce the administrative burden on taxpayers when meeting their tax obligations, and in this regard, Revenue continues to provide reduced payment and filing patterns to taxpayers that meet certain criteria. For VAT, the qualifying criteria is as follows:
- four-monthly returns, if the annual VAT liability is between €3,001 and €14,400.
- six-monthly returns, if the annual liability is €3,000 or less
Where taxpayers meet either of the criteria outlined above, they can apply to Revenue to move to the applicable reduced filing frequency.
