Funding a VAT, PAYE or Corporation Tax bill

Tax bills are predictable, but they still catch businesses out. A strong quarter can mean a large VAT bill just as cash is committed elsewhere, and Corporation Tax lands months after the profit was made. If a tax bill is coming and the cash is not there, you have options. This guide sets them out.

Know your deadlines

Missing HMRC deadlines usually leads to interest and, in many cases, penalties. As a general guide:

• VAT: for most VAT-registered businesses filing quarterly, the return and payment are due one calendar month and seven days after the end of the VAT period.
• PAYE and National Insurance: monthly payments are usually due by the 22nd of the following tax month when paid electronically. Smaller employers may be able to pay quarterly.
• Corporation Tax: for most companies, payment is due nine months and one day after the end of the accounting period. Larger companies pay in instalments.

Check your own dates in your HMRC business tax account, as arrangements can differ.

Option 1: HMRC Time to Pay

If you cannot pay in full, contact HMRC before the deadline. HMRC can agree a Time to Pay arrangement, letting you pay in instalments.

• Interest is charged on the outstanding amount.
• HMRC will want to understand your finances and be confident the arrangement is affordable.
• You must keep up with the arrangement and stay up to date with new tax as it falls due.

Time to Pay can be a sensible route, but agreement is not guaranteed and terms are set by HMRC. Some lenders will consider businesses already on a Time to Pay plan; others prefer it to be cleared.

Option 2: a tax loan

Some lenders offer short-term loans specifically to pay VAT or Corporation Tax. The lender may pay HMRC directly, and you repay in instalments, often over three to 12 months.

• Good for spreading a known bill and keeping HMRC paid on time.
• Costs vary, so compare the total repayable with the interest and penalties of paying late, and with Time to Pay.

Option 3: a general business loan or other finance

A standard unsecured business loan can be used for tax. If you invoice other businesses, invoice finance may release enough cash to cover the bill. If you take card payments, revenue-based finance is another route. Our other guides explain each in detail.

What lenders look at

• Amount and type of tax owed, and the due date.
• Whether you already have a Time to Pay arrangement, and whether it is up to date.
• Any HMRC arrears beyond the current bill. Large or old arrears make lending harder.
• Your trading, turnover and bank conduct, as with any business loan.

Being upfront about your tax position helps. Lenders will usually spot HMRC payments, or the lack of them, in your bank statements.

Avoiding the problem next time

• Move VAT and PAYE into a separate account as you collect them.
• Set aside a percentage of profit each month for Corporation Tax.
• Use cashflow forecasts to see big bills coming early.
• Ask your accountant whether a different VAT scheme might suit you better.

Comparing the cost

When deciding between paying late, Time to Pay and a loan, compare the full cost of each:

• Paying late: HMRC late payment interest plus any penalties, and the risk of enforcement action if arrears build up.
• Time to Pay: HMRC interest on the outstanding amount, spread over the agreed period, with no lender fees.
• A tax loan or business loan: the lender's interest and fees, but HMRC is paid on time.

The cheapest option on paper is not always the right one. A Time to Pay plan may need to be repaid faster than you would like, while a loan can give more predictable monthly repayments. Work out what your business can comfortably afford each month, and choose the route that keeps you up to date with new tax as well as the old bill.

Getting help quickly

If a deadline is close, act now. Speak to HMRC if you need Time to Pay, and in parallel run a quote to see whether finance is an option. In our quote, choose "Tax bill" as your purpose and tell us the amount, the type of tax, the due date and whether you are already on a Time to Pay plan. Figures are indicative only and subject to lender assessment and approval.