Can't Pay Your VAT or Tax Bill?

If you can't afford to pay your VAT or corporation tax bill, the worst thing you can do is ignore it. HMRC charges 7.25% interest on late payments (from April 2026) and can issue surcharges, penalties, and ultimately winding-up petitions. But there are legitimate options: HMRC's Time to Pay scheme, invoice finance to release cash from unpaid invoices, or short-term business loans to bridge the gap.

Option 1: HMRC Time to Pay (Free)

HMRC's Time to Pay (TTP) arrangement lets you spread your tax bill over 6-12 months. It's free to set up and available to businesses that can demonstrate a temporary cash flow problem (not chronic inability to pay). Call the HMRC Payment Support Service on 0300 200 3835 BEFORE the due date - proactive contact gets much better outcomes than waiting until you've missed the deadline.

Interest still accrues on the outstanding balance (7.25% from April 2026), but penalties and enforcement action are paused while the arrangement is in place. This is the first thing to do if the bill is simply too large to pay in one go.

Option 2: Release Cash from Unpaid Invoices

If you have outstanding invoices from customers who haven't paid yet, invoice finance can release 70-95% of their value within 24 hours. This is often enough to cover a VAT bill without taking on any additional debt.

Example: Your quarterly VAT bill is £15,000. You have £25,000 in unpaid invoices. Invoice finance releases £21,250 (85%) within 24 hours - more than enough to pay HMRC on time. The cost: approximately £375-£750 (1.5-3% of the invoices). Compare that to HMRC's 7.25% interest rate plus potential penalties.

Option 3: Short-Term Business Loan

A short-term business loan (3-12 months) can cover a one-off tax bill. Interest rates range from 8-20% depending on your credit and the lender. This is more expensive than invoice finance but available to B2C businesses that can't use invoice factoring.

Platforms like Funding Circle, iwoca, and Capify can approve within 24-48 hours for existing customers. This is a fire-fighting measure, not a long-term solution.

Prevention: Set Aside VAT as You Earn It

The best solution is prevention. Open a separate savings account and transfer 20% of every payment received as soon as it lands. When the quarterly VAT bill arrives, the money is already there. Many accounting packages (Xero, QuickBooks) can automate this calculation.

If the underlying problem is that customers are paying late and you're spending VAT money while waiting for invoices to be paid, that's exactly what invoice finance solves. You get the cash (including the VAT element) within 24 hours of invoicing, so the VAT money is available immediately.