How to Pay Your VAT Bill

If you’re a VAT-registered business, paying your VAT bill on time and in full is a key obligation. VAT is treated differently from other forms of tax, with more regular deadlines and on-the-go accounting, meaning it’s up to you to ensure you have the funds available to pay your bill every quarter. 

In this article, we cover how to pay your VAT bill, the instalment options available, and the solutions you can turn to if you’re unable to meet your liabilities, such as payment plans or loans.

What are the VAT payment deadlines in the UK?

Most businesses file VAT returns quarterly. Payments are due one calendar month and seven days after the end of your VAT accounting period. For example, if your VAT quarter ends on March 31, your payment deadline would be May​​ 7.

However, there are instances where businesses are given different VAT deadlines and payment steps, such as those using the Payments on Account regime or Annual Accounting Scheme.

Payments on Account (POA) regime

For businesses that fall under the Payments on Account regime:

• You make interim payments at the end of months two and three within your VAT quarter.
• A balancing payment is due with your VAT return submission​.

Annual Accounting Scheme

If you’re part of the Annual Accounting Scheme, you must make either monthly or quarterly instalments throughout the year, based on your prior year’s VAT liability. A final balancing payment is due with your annual VAT return​.

Different ways to pay your VAT bill

HMRC offers businesses multiple payment methods to suit different needs and preferences. Here are the main ways you can pay your VAT bill in the UK:

• Online banking: Use your bank’s online service to approve payments directly to HMRC. Payments via Faster Payments or CHAPS usually arrive the same day​.
• Debit or corporate credit card: Payments can be made online using HMRC’s portal. Note that personal credit cards are not accepted​.
• Direct Debit: Setting up a Direct Debit is ideal for recurring VAT payments. However, it takes three working days for the first payment to process​.
• Bank transfer: You can transfer funds via Bacs or standing order. Ensure payments are made well in advance to meet deadlines​.
• In-person at your bank or building society: For businesses that prefer in-person payments, VAT can be paid over the counter using cash or cheque​.

VAT payment confirmation

HMRC will issue a payment reference number immediately for online payments. Transactions typically appear in your VAT online account within 3–5 days​.

How to pay VAT online (quick-step guide)

HMRC has been increasingly encouraging trying to get businesses and individuals to shift from the traditional methods of filing and paying tax to a more measured and integrated process. For example, Making Tax Digital has sought to modernise the UK system, enabling faster and more auditable submissions.

It’s fairly simple to pay your VAT online – here are the main steps involved:

1. Log in to your HMRC online account using your Government Gateway user ID and password.
2. Select the VAT service linked to your business and view your VAT return or payment amount due.
3. Note your payment deadline and check that the amount owed is accurate.
4. Once you’re ready to make a transaction, choose your preferred payment method – be aware that some methods take longer than others to clear.
5. Submit a payment with your VAT registration number as the reference, as  HMRC needs to match the payment to your tax account.
6. Maintain records of your VAT submissions and payments to easily track or answer queries regarding your account from HMRC.

Can you use software to help pay a VAT bill?

Yes, there are various software solutions to help you pay your VAT bill and keep accurate records more easily and quickly. As part of HMRC’s initiative to digitise tax processes, it has enabled accounting tools and other smart software to integrate with its system, helping VAT-registered businesses maintain digital VAT records and file their returns directly through compatible software.

While these integrations don’t necessarily let you pay HMRC directly, they knit processes together to improve accuracy, reduce manual admin tasks and enable companies to see their tax position in real-time.

Here are some of the popular software solutions that simplify VAT returns and payments to HMRC for small businesses:

• QuickBooks: Offers real-time dashboards for any device and automatically checks your VAT for errors before submitting returns directly to HMRC. You can track, store and categorise all expenses and transactions in one place.
• Xero: Calculates VAT and files returns to HMRC and lets you view VAT transaction details and make adjustments when you pay VAT online. Xero also has dedicated solutions for construction firms to help manage CIS deductions and ease compliance.
• FreeAgent: Enables you to automatically generate VAT returns and submit them to HMRC with ease. FreeAgent creates a Tax Timeline to ensure you meet your deadlines and has an Open Banking feed that backfills your account with historical bank transactions.

There are various other cloud software solutions to explore, while enterprise platforms like Sage can cater for larger business needs.

What happens if you can’t pay your VAT bill?

If you fail to pay your VAT bill on time, there are inevitably consequences, including late submission and payment penalties, plus other knock-on effects. We’ve outlined what you need to know below:

Late payment penalties

When VAT payments are late, HMRC charges penalties in stages to encourage prompt action. Here’s a brief summary of the late VAT payment penalty stages:

1. Day 16-30: A penalty of 3% is charged on the outstanding VAT amount at day 15.
2. Day 31: At day 31, a penalty of 3% is charged on what was outstanding at day 15 plus 3% of what is still outstanding at day 30.
3. Ongoing: A second late payment penalty is calculated at a daily rate of 10% per year on the outstanding balance and charged every day from day 31 until the outstanding balance is paid in full or before the end of a two-year assessment time limit (where tax remains outstanding), when HMRC will assess your position.

For businesses unable to pay their VAT on time, contacting HMRC to set up a Time to Pay (TTP) arrangement within the first 15 days can help prevent these penalties from escalating​​.

Late submission penalties

HMRC’s late submission penalties operate under a points-based system, which replaces the old default surcharge model. 

Key details for late VAT returns:

• Each missed VAT return earns one penalty point.
• Once you reach the penalty point threshold, a fine of £200 is applied.
• Additional £200 penalties are charged for every subsequent late VAT return while you remain above the threshold.

Penalty point thresholds:

• Monthly returns = 5 points.
• Quarterly returns = 4 points.
• Annual returns = 2 points.

You can reset your points back to zero by submitting all outstanding returns and staying compliant for a “period of compliance” (e.g., 12 months for quarterly returns)​​.

What is the interest on late payments?

In addition to penalties, HMRC charges late payment interest for VAT starting from the day after the VAT payment deadline. The interest rate is the Bank of England base rate plus 4% (this late payment interest rate recently jumped from 2.5% to 4%  from April 2025). For example:

• With the current base rate at 4% (as of the recently announced cut of interest rates on August 7, 2025), late payment interest is charged at 8% per year.
• Interest is calculated daily until the balance is fully paid​​.

What happens if you don’t pay?

If VAT remains unpaid and no arrangement is made, HMRC may take enforcement action, including:

• Issuing a statutory demand for payment.
• Seizing assets through the distraint process.
• Initiating court proceedings to recover the debt​​.

What are the options if you can’t pay your VAT on time?

If you’re struggling to pay your VAT bill on time, there are ways to alleviate the pressure, spread the costs of your VAT owed and get support. Here are the main routes to take:

• Continue filing VAT returns: Sticking your head in the sand is the worst option – even if you can’t pay, HMRC advises businesses to keep submitting their VAT returns to demonstrate compliance and show goodwill.
• Negotiate a Time to Pay arrangement (TTP): HMRC’s TTP arrangements allow businesses to spread VAT payments over instalments. Eligibility requires proving you can pay off the debt (including upcoming liabilities) within 12 months​​.
• Seek professional advice: If VAT arrears are part of broader financial challenges, consult a licensed insolvency practitioner to explore restructuring options​.

How to set up a VAT payment plan

Setting up a VAT payment plan can be your best course of action if you’re having trouble meeting deadlines and paying your VAT bill on time. It can stop things from escalating and ease some of the immediate pressure.

The main way to set up a VAT payment plan is through the government’s Time to Pay scheme, which offers payment plans for various tax obligations, including VAT. These payment plans let you spread the cost of your VAT over more manageable monthly instalments.

Here are the key considerations when looking to use HMRC’s VAT payment plans:

1. Contact HMRC early: Initiate discussions before the payment deadline to avoid penalties. Call HMRC’s Business Payment Support Service on 0300 200 3835 to begin the process​.
2. Eligibility requirements:
   
   • Demonstrate genuine financial difficulty leading to this point.
   • Be up-to-date with your VAT return submissions.
   • Show that you have the ability to clear your VAT debt within an agreed timeframe​​.
3. Provide financial details: HMRC will assess your income, expenditure, assets and cash flow before approving the plan. Be prepared to discuss the measures you’ve taken to manage your tax debt​.
4. Agreement terms: Most TTP arrangements require monthly payments and are reviewed periodically. Payments are flexible, but they must align with your financial capacity​.

VAT payment plans do involve paying interest, but they prevent you from receiving additional late payment penalties. 

How to finance VAT payments

Paying your VAT bill on time is a must if you want to avoid penalties and interest charges, but the reality of running a business means that cash flow issues can arise at any time. This is where VAT loans come in, which are fast finance in the form of a short-term loan to meet your immediate obligations.

Using finance to pay VAT bills can help businesses:

• Avoid receiving HMRC penalties, which can escalate quickly.
• Protect cash flow for essential business operations, such as payroll or stock purchases.
• Manage seasonal income fluctuations or unexpected expenses.

With a VAT loan, you can spread the cost of your tax liability over manageable instalments, easing short-term cash flow pressure while staying compliant.

At iwoca, we know from working with over 150,000 businesses just how important fast, transparent finance is to keeping your company on track. That’s why we designed our Flexi-Loan to help you bridge the gap when cash flow is tight. 

Benefits of our flexible business loans:

• Simple application – apply for a loan in minutes and borrow between £1,000 and £1 million.
• Fast access to funds – get an approval decision within as little as 24 hours and access capital on the same day.
• Control your borrowing – only pay interest on the amount you draw down and repay early or overpay with no additional fees.
• Manage your cash flow – enjoy affordable repayments and top up your Flexi-Loan (subject to approval) once you’ve repaid a certain amount to keep your business finances flexible. 

Apply for a loan with iwoca today or use our handy business loans calculator to find out your likely repayments.  

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FAQs about VAT payments

1. How long do I have to pay my VAT bill?

VAT bills are typically due quarterly, and payments must reach HMRC’s account by the same day as your VAT return deadline. Businesses on the Annual Accounting Scheme may have different deadlines​​.

2. Can I pay my VAT bill with a credit card?

Yes, but only corporate credit cards are accepted. Personal credit cards are not permitted for VAT payments​.

3. Can I pay my VAT bill in monthly instalments?

Yes, through a Time to Pay arrangement or the Annual Accounting Scheme, which allows businesses to spread VAT payments​​.

4. Do I pay VAT on the first £90,000 of my turnover?

No. The £90,000 figure is the current VAT registration threshold in the UK, meaning you only need to register once your taxable turnover exceeds this amount in a rolling 12-month period. So, if you’re over the threshold, you should register, charge VAT on eligible sales and make VAT returns to HMRC every three months.

5. Do I pay VAT on profits or turnover?

Your VAT bill is based on your business turnover, not your profits. It’s applied to the value of VAT-eligible goods and services you sell, and the VAT you collect from customers is then passed on to HMRC. Profits are handled separately and are subject to income tax or corporation tax instead.

6. Do sole traders pay VAT?

Sole traders must be VAT-registered if their taxable turnover exceeds the £90,000 annual threshold. Then, like any other business, you’ll need to charge VAT on your sales and file VAT returns in line with HMRC’s rules. As a sole trader, you can register voluntarily even if you’re not above the threshold for more regular VAT reclaiming on business purchases/expenses.

7. Can I defer VAT payments?

Yes, there are certain circumstances where businesses can defer VAT payments, such as when importing goods (through a duty deferment account), if an unexpected event significantly impacts operations and revenues (such as the global pandemic) or by using a TTP arrangement. However, the latter is technically a payment plan, rather than a deferral, but it does give you longer to pay your VAT bill beyond the original deadlines.