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.
| HMRC Time to Pay | VAT funding | |
|---|---|---|
| Cost | HMRC interest | Lender's fixed cost |
| Approval | HMRC decision, needs early contact | Lender credit decision |
| HMRC record | Arrangement noted with HMRC | HMRC paid in full, on time |
| Speed | Same-day by phone when eligible | Typically days, apply before the deadline |
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.
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Frequently asked questions
What happens if I can't pay VAT on time in the UK?
File the return on time regardless — the penalty for a late return is separate from late payment. Then either agree a Time to Pay instalment plan with HMRC before the deadline, or use VAT funding to pay the bill and repay a lender in instalments. Doing nothing triggers late-payment penalties and interest, and makes HMRC far less flexible.
Does a Time to Pay arrangement affect my credit rating?
HMRC does not routinely report Time to Pay arrangements to credit agencies, but lenders often ask about tax arrears in applications, and HMRC arrears visible in accounts can affect lending decisions. This is one reason some businesses prefer VAT funding: HMRC is paid on time and in full, keeping the tax record clean.
Can I get VAT funding as a limited company?
Yes — VAT and corporation tax funding are established products for UK limited companies, LLPs, sole traders and partnerships. The lender pays the bill (or funds it to you at the deadline) and the company repays in instalments, typically across the quarter. Approval is based on trading history and bank statements.
Is CapExpand FCA regulated?
CapExpand Ltd is not directly authorised by the Financial Conduct Authority. CapExpand Ltd (FRN 1060885) is an Appointed Representative of White Rose Finance Group Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 630772). That appointment means White Rose Finance Group Limited is responsible for our credit broking, and both firms appear on the Financial Services Register at register.fca.org.uk. We are a credit broker, not a lender.
VAT deadline approaching?
Tell us the amount and the due date, and we will check what can complete before it.
You speak to a person who looks at your numbers; nothing is submitted anywhere until you say so.
CapExpand Ltd · Company No. 14433858 · ICO ZB789649 · Annesley, Nottingham
Important information
CapExpand Ltd (FRN 1060885) is an Appointed Representative of White Rose Finance Group Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 630772). We are a credit broker, not a lender, and we do not provide financial, tax or legal advice. We work with a panel of lenders whose particulars are available on request. If a deal completes the lender pays us a commission, at no cost to you; different lenders pay different amounts under different models, and we will tell you the amount for your deal on request. All lending is subject to status, valuation where applicable and the lender's own checks.
Registered office: Pure Offices, Lake View Drive, Annesley, Nottingham, NG15 0DT. Company No. 14433858.