Last updated: 14 October 2026
What can you do if you’re struggling to pay VAT because of a cash-flow problem?
Contact HMRC before the payment is 15 days late and ask for a Time to Pay arrangement. If HMRC agrees, or you propose one within 15 days, late payment penalties don’t apply, although interest still does. You can set up a plan online if you owe £100,000 or less, are up to date with returns and have no other plan. Filing your VAT return on time is still essential, even if you can’t pay.
Why act within 15 days
| Days late | Penalty if no Time to Pay |
| Up to 15 | None |
| 16 to 30 | 3% of the VAT unpaid at day 15 |
| 31 or more | A further 3%, plus 10% a year charged daily |
Interest at the base rate plus 4% runs from day one.
Setting up Time to Pay
- File your VAT return on time
2. Work out what you can afford each month
3. Use the online VAT payment plan service if you qualify, or call HMRC’s Payment Support Service
4. Pay by direct debit as agreed
5. Keep up with future VAT returns and payments
Other ways to ease VAT cash flow
- Cash accounting: pay VAT only when customers pay you (turnover up to £1.35 million)
- Annual accounting: spread payments in monthly or quarterly instalments
- Bad debt relief: reclaim VAT on invoices unpaid for more than 6 months
- Postponed import VAT accounting: stop paying VAT at the border
- Chase debtors and agree payment terms with suppliers
Example
A café owes £9,000 of VAT due on 7 May. On 10 May, the owner sets up a 6-month online payment plan of £1,500 a month plus interest. No late payment penalty is charged.
Warning signs
If you regularly can’t pay VAT, it may mean the business is using VAT to fund trading. Review your pricing, margins and cash flow. For limited companies, directors who keep trading while insolvent can face personal risks.
What not to do
- Don’t miss returns. Late filing earns penalty points
- Don’t ignore HMRC letters
- Don’t use VAT money for other costs as a habit
What to do when you can’t pay VAT
Contact HMRC before the due date if you can’t pay. HMRC is more likely to agree a payment plan if you call early. File your return on time even if you can’t pay, so you avoid late filing points. Keep notes of every call and letter, and set aside the VAT you collect in a separate bank account so you’re not caught short again.
A further example
A retailer owes £12,000 VAT and sets up a 6-month payment plan online for about £2,000 a month, plus interest. HMRC may also ask for a budget or cash-flow forecast.
Frequently asked questions
Can HMRC refuse Time to Pay?
Yes, if it doesn’t think you can keep to the plan or you have defaulted before.
Does Time to Pay affect my credit score?
No.
Can I pay VAT by credit card?
Only with a corporate credit card, for a fee.
What if I can’t pay at all?
Take advice from an accountant or insolvency practitioner quickly.
Related: VAT late filing penalties and standard VAT accounting.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with VAT payment problems. See our VAT accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
