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Few moments concentrate a director's mind like a VAT return that is filed, correct, and unpayable. The money exists — it is sitting in three unpaid customer invoices — but HMRC's deadline does not move for that. This guide compares the realistic options when a VAT or corporation tax bill lands before the cash does: talking to HMRC, borrowing, and the quietly expensive option of doing nothing.
Know your deadlines cold
VAT returns and payments are due one month and seven days after the end of each quarter — a return for the quarter ending 31 March is due by 7 May. Corporation tax is due nine months and one day after the end of the accounting period, and note the trap in the ordering: payment falls due before the filing deadline for the return itself, so the bill arrives before some directors expect to think about it. PAYE and CIS run monthly. None of these dates flex, and each has its own interest and penalty machinery that starts running the day after.
Why doing nothing is the worst-priced option
An unpaid tax bill is borrowing from HMRC on HMRC's terms. Late payment attracts interest pegged above the Bank of England base rate, VAT carries an escalating late-payment penalty regime on top, and late returns accrue penalty points that convert to fines. Beyond the arithmetic, a tax debt left unaddressed changes your relationship with HMRC: enforcement can escalate from letters to debt collection to, ultimately, a winding-up petition. The single most damaging move is silence. Every other option on this page beats it.
Option one: HMRC Time to Pay
HMRC agrees instalment arrangements — Time to Pay — for businesses that engage before or immediately at the deadline and can show the debt is a timing problem, not a solvency one. Smaller debts can often be arranged through your online tax account without speaking to anyone; larger ones mean a phone call to the Payment Support Service and a discussion of your cash position. Interest still runs on the outstanding balance, but penalties are generally avoided while you keep to the arrangement. The strengths: no new borrowing, no credit application. The limits: it is discretionary, it typically expects the debt cleared within months, keeping to the schedule is essential (a broken arrangement is worse than none), and repeat arrangements attract harder questions each time.
Option two: short-term borrowing against a known receipt
When the shortfall is small and the incoming cash has a date on it, a short-term business loan turns the tax deadline into a fixed, known cost and keeps your HMRC record spotless. This is precisely the use-case our VAT bill finance page describes: the company borrows, pays HMRC in full and on time, and repays the loan when the customer payment lands. The comparison to run is simple — the total cost of borrowing versus the interest, penalties and relationship cost of the HMRC routes. For larger VAT bills, specialist VAT funders and banks offer bigger facilities over three to twelve months; the same comparison applies, with arrangement fees and (frequently) personal guarantees added to the scales.
A worked example
Illustrative example. A courier company's VAT bill of £470 is due on 7 August. Its biggest customer pays, reliably, on 28 August. Route one: a Time to Pay arrangement over three months — workable, with interest accruing, a monthly commitment to keep, and an arrangement on the record. Route two: borrow £470 for 28 days at 0.25% per day — £32.90 interest plus a £5 establishment fee, £37.90 in total. HMRC is paid in full on 7 August, the customer's payment clears the loan on 28 August, and the company's tax record shows nothing at all. Representative example: borrow £200 for 30 days, repay £220. The right answer depends on the certainty of that 28 August payment — borrowing against a customer who might not pay converts a tax problem into a debt problem.
The test: timing problem or solvency problem?
Everything above assumes the money is genuinely coming. Be honest about that. If this quarter's VAT is unpayable because every quarter's VAT is unpayable — margins too thin, or VAT collected from customers being spent as working capital — then instalments and borrowing only defer a pricing or cost problem at interest. The structural fix is a separate account that receives the VAT portion of every sale the day it is banked, so the quarterly bill is pre-funded. If the business cannot afford to do that, the business is under-priced, and that conversation is worth more than any financing.
Next quarter, made boring
The directors who never read guides like this one all run the same system: VAT money swept to a separate account weekly, corporation tax accrued monthly from management figures, and every HMRC deadline diarised with a two-week warning. For the quarter already upon you: engage HMRC early if you need instalments, or if the gap is short and the incoming payment certain, check your eligibility — a soft search, no credit footprint — and apply online. Loans run £50 to £500 over 14 to 84 days, to UK limited companies and LLPs, with no personal guarantee.
Frequently asked questions
- Can I pay HMRC in instalments if I cannot pay my VAT bill?
- Often, yes — through a Time to Pay arrangement. Smaller VAT debts can frequently be set up as an instalment plan through your online account; otherwise you call HMRC's Payment Support Service before the deadline and discuss the company's position. Interest runs on the balance, but penalties are generally avoided while you keep to the agreed schedule.
- Is it better to borrow to pay a tax bill or use HMRC Time to Pay?
- Compare total costs and certainty. Time to Pay involves no new borrowing but accrues HMRC interest, requires months of adherence, and sits on your HMRC record. A short-term loan has a fixed, known cost and keeps your tax record clean, but only makes sense when the repayment source is certain. For a small bill with a dated incoming payment, borrowing is often cheaper and cleaner; for a larger, slower shortfall, Time to Pay usually fits better.
- Can a limited company borrow to pay corporation tax?
- Yes — lending for a corporation tax bill works the same way as for VAT, and corporation tax is more predictable: it is due nine months and one day after the accounting period ends, so the date is known far in advance. Credicorp lends £50 to £500 over 14 to 84 days to UK limited companies and LLPs, which suits a modest shortfall against a dated receipt rather than a large structural gap.
- What happens if I just pay my VAT late?
- Interest starts accruing immediately at a rate pegged above the Bank of England base rate, and an escalating late-payment penalty regime applies the longer the debt runs. Late returns separately accrue penalty points that convert to fixed fines. Persistent non-payment escalates to enforcement. Even a few weeks' silence is usually more expensive — in money and in standing with HMRC — than either an instalment arrangement or short-term borrowing.