Can't pay your VAT bill: options before the deadline

If a VAT bill is due and the money is not there, you have two workable options and one deadline: agree a Time to Pay arrangement with HMRC, or spread the bill with VAT funding — and either works far better before the due date than after it. Ignoring the deadline is the only genuinely bad choice: penalties and interest start, and HMRC becomes much harder to negotiate with.

Both routes are compared below, along with the change that stops the same squeeze recurring every quarter.

What is HMRC Time to Pay and will I get it?

Time to Pay is an instalment arrangement agreed directly with HMRC, spreading a tax bill over several months. HMRC agrees these routinely for businesses that approach them before the deadline with a realistic proposal and up-to-date returns. Interest is charged, but late-payment penalties are generally avoided while the arrangement is kept.

The practical requirements: file the VAT return on time even if you cannot pay it, call HMRC (or use the online service for eligible amounts) before the payment deadline, and propose instalments the cash flow genuinely supports. Defaulting on an agreed plan makes any future arrangement much harder.

How does VAT funding work instead?

VAT funding is a short-term facility that pays the VAT bill on time and is repaid to the lender in instalments, typically across the quarter. The business pays the lender’s cost in exchange for keeping HMRC fully paid, keeping Time to Pay in reserve for a genuine emergency, and keeping the arrangement invisible to HMRC.

Which is better depends on cost and circumstance: Time to Pay carries HMRC interest and requires the conversation with HMRC; VAT funding carries a lender’s cost and a credit application. Businesses that value keeping their HMRC record clean (for example ahead of a larger finance application, where lenders check tax arrears) often choose funding for that reason alone.

What a VAT facility looks like in numbers

VAT funding is a short unsecured loan with a specific job, and it is priced accordingly. At £25,000, 36 lenders on our panel have a product covering the amount, over terms of 1 to 72 months, with published rate floors from 4.1% and a median floor of 19.2% a year (checked September 2026). Most VAT facilities run over three, six or twelve months, so the pound cost is a fraction of an annual rate rather than the whole of it.

Dedicated VAT lenders sit alongside general working-capital providers on our unsecured panel of 55, including names such as Adsum, BloomSmith, White Oak, Premium Credit. A specialist will usually pay HMRC directly rather than paying you, which removes any argument about whether the money reached the right place.

A different route exists if the VAT you cannot pay is the VAT on a machine you are buying. 25 of our asset finance lenders will defer the VAT element of an equipment purchase, so the cash you need on day one drops by roughly a fifth and the VAT is settled once the reclaim lands (checked September 2026). That is a cheaper answer than borrowing the VAT twice, and almost nobody asks about it.

Scale changes the field as well as the price. At £10,000 the panel holds 30 lenders with a median published floor of 21.3%, at £100,000 it holds 45 at 15.3%, and at £250,000 it holds 35 at 14.5% (checked September 2026). A £6,000 VAT bill is a harder thing to place well than a £60,000 one, which is the opposite of what most people assume.

The one thing worth saying plainly: a facility that clears this quarter and leaves the next one unfunded has moved the problem, not solved it. Where the same squeeze arrives every three months, the fix is a standing reserve or a Time to Pay arrangement, and we would rather point you there than write the same loan four times a year.

How do I stop the VAT squeeze happening every quarter?

A recurring VAT crunch means VAT collected from customers is being absorbed into working capital during the quarter. The structural fix is to move each return’s VAT into a separate account weekly, so the money exists when the bill lands. Where margins make that impossible, the business is effectively borrowing from HMRC every quarter. Many in that position put deliberate working capital in place instead of facing the same deadline crisis four times a year.

Frequently asked questions

Related pages

• VAT and tax funding
• Cash flow problems: practical options
• Working capital finance
• VAT loans and corporation tax funding guide

Sources

HMRC guidance was read on 7 September 2026. Panel counts cover available products only.

1. HMRC: if you cannot pay your tax bill on time
2. HMRC: pay your VAT bill
3. HMRC: VAT penalties and interest for late payment
4. British Business Bank: business guidance
5. FCA: business lending and what is regulated