October 20, 2026 - Micro Entity Accounts

Can You Pay VAT in Instalments? Everything You Need to know

Businesses, even the successful ones, may face challenges while managing VAT. However, HMRC provides structured ways to spread the cost, helping you avoid risks of costly penalties and enforcement action. One common question businesses ask when facing cash flow difficulties is, “Can you pay VAT in instalments?” In some cases, yes. HM Revenue and Customs may agree to a payment plan, known as a Time to Pay arrangement. This allows eligible businesses to pay overdue VAT in instalments. This blog explains how you can pay VAT in instalments, what HMRC considers when assessing requests, and what options may be available if you cannot pay your VAT bill on time. Can You Pay VAT in Instalments in the UK? If you are wondering whether you can pay VAT in instalments, here is the answer. HMRC may allow you to pay overdue VAT in instalments through a Time to Pay (TTP) arrangement. However, approval is not automatic. It depends on your financial circumstances. When assessing a request, HMRC considers whether the proposed payments are affordable, how quickly you can pay the outstanding VAT, and whether you can meet other tax liabilities as they fall due. Keep in mind that late payment interest usually continues to apply while VAT remains unpaid, even if you are paying through an agreed instalment plan. Also, an arrangement may reduce or prevent certain late-payment penalties, depending on when you make your proposal and whether HMRC agrees to it. So, if you want to calculate your VAT, you can use our free VAT calculator UK. Furthermore, to understand your VAT obligations completely, you can read our guide to VAT on digital products and services. What Is an HMRC Time to Pay Arrangement? Understanding a Time to Pay arrangement (TTP) is a crucial part of learning VAT in instalments. A TTP is an agreement that allows you to repay tax debt in instalments instead of paying the entire outstanding amount immediately. For a business with an unpaid VAT bill, HMRC considers the amount owed, the business’s financial position and the repayment proposal. A business should be prepared to explain why it cannot pay in full and how it intends to clear the debt. Note that a payment plan is not automatic. HMRC may ask for further financial information or require you to revise your proposal. Who Can Apply for a Time To Pay Arrangement? Not all businesses qualify to pay through a TTP arrangement. HMRC assesses businesses and evaluates them to see if they meet the criteria. To qualify under the HMRC assessment process, businesses must: Demonstrate your current financial position Show a good compliance history (filing and payments on time) Provide a realistic repayment plan to clear the VAT debt Now that your question, “can you pay VAT in instalments?” is answered, let’s discuss if you can set up a VAT payment plan online. Can You Set Up a VAT Payment Plan Online? Yes, you may be able to arrange a payment plan online. However, it depends on your circumstances and whether your tax account meets HMRC’s eligibility conditions. To do so, you may need: The relevant tax reference or details from HMRC correspondence. Information about your business’s income and expenditure. Your UK bank account details and authority to set up a Direct Debit. Details of other tax debts. Details of your proposed monthly repayments. If you are struggling to set up a plan online, contact HMRC to discuss your circumstances. Visit HMRC’s official online payment-plan guidance to check whether you can use the service. Can You Pay VAT in Instalments Online? As discussed above, you can pay VAT in instalments online. HMRC has simplified the VAT process by allowing you to set up a VAT payment plan online. However, there are eligibility conditions that your business must meet for online VAT. VAT Online Methods There are several secure methods through which you can pay your VAT bill online. Some of the methods are: You can make a payment through direct debit. This is one of the most common ways to pay VAT online. Set up this method at least 3 working days before submitting your returns. You can pay by corporate debit or credit card (charges may apply). HMRC does not accept personal credit cards. You can manually transfer funds through CHAPS, BACS or Faster Payments. You can pay directly through your online bank account via HMRC’s payment portal. For this, sign in to your HMRC online account and select pay by bank account. Usually, the payment is instant but can take up to two hours to appear in your bank account. How to Apply for a VAT Instalment Plan? After understanding that you can pay your VAT in instalments, you must want to know the process to apply for the instalment plan, right? Don’t worry, follow these steps to establish a VAT instalment payment system: Contact HMRC Early Contact HMRC as soon as you realise you may face difficulty paying your VAT bill by the deadline. Also, explain your circumstances and ask whether you can arrange to pay the outstanding VAT in instalments. Prepare Your Financial Details Be ready to explain your business’s financial position, including income, expenditure, outstanding liabilities, and available funds. Negotiate a Repayment Plan Then, you should establish a payment arrangement that occurs simultaneously when your business receives cash. Confirm Agreement If HMRC approves your arrangement, make the agreed payments on time. Then continue submitting VAT Returns and paying future tax liabilities when due. Can You Pay VAT in Instalments Through the Annual Accounting Scheme? Yes, the VAT Annual Accounting Scheme allows eligible businesses to spread their VAT payments across the year, helping them manage cash flow. Unlike a TTP arrangement for overdue VAT, the scheme involves submitting one VAT Return annually. Furthermore, businesses can typically choose nine monthly instalments or three quarterly instalments based on their expected VAT liability. After submitting the annual VAT Return, they must pay any outstanding balance. What Are the Pros and Cons of Annual Accounting? In

Micro Comapny Accounts

Who Qualifies as a Micro Entity in the UK? Save on Accounts & Filing

John / October 20, 2026

If you run a small limited company in the UK, you might qualify as a micro entity — the smallest company category recognised under UK law. Micro entity status means simpler accounting rules, stripped-down accounts and less paperwork, so you spend less time on compliance and more time running your business. Whether you qualify comes down to three size limits: annual turnover, balance sheet total and average number of employees. Meet at least two out of three for two consecutive years, and you can prepare your accounts under the simplified FRS 105 standard. If you’re new to the concept, start with our guide on what are micro entity accounts before checking the limits below. Worth knowing: the limits rose on 6 April 2025 to £1 million turnover and £500,000 balance sheet total (employees unchanged at 10). If your accounting period began before that date, the older limits (£632,000 and £316,000) apply to that period. What Counts as a Micro Company in the UK? Your company qualifies as a micro entity if it meets at least two of these three conditions in a financial year: Annual turnover of £1 million or less Balance sheet total of £500,000 or less (the gross value of your company’s assets — cash, money owed by customers, equipment, stock — not profits or net worth) 10 employees or fewer on average across the year You only need two of the three — not all three. A consultancy turning over £900,000 with 4 staff qualifies even if its balance sheet is higher, and a company with £1.4 million turnover but a £300,000 balance sheet and 6 employees still qualifies. You’ll need to meet the conditions for two consecutive financial years before the status is confirmed, but a brand-new company can qualify in its first year if it meets the conditions in that year. One detail that catches people out: if your first accounting period is shorter than 12 months, Companies House annualises your turnover when checking the threshold — a £600,000 turnover in a 6-month period counts as £1.2 million annualised, which would take you over the limit. Preparing your micro entity accounts correctly starts with getting the qualifying tests right. Who Cannot Be a Micro Entity? Even if you meet the size limits, certain companies are automatically excluded. You cannot be a micro entity if your company is: A public limited company (PLC) Part of a group of companies, unless the whole group qualifies as small An authorised insurance company or carrying on insurance market activity Involved in banking or financial services A charitable company Most ordinary small businesses won’t fall into these excluded categories, so if you run a straightforward trading business, service company or consultancy — including property investment vehicles like the ones covered in our guide to micro entities for SPVs — you’re likely fine. What Do You Actually File Under FRS 105? FRS 105 micro entity accounts are the simplest statutory accounts a UK company can file. A complete set filed with Companies House consists of: A simplified balance sheet, signed by a director and dated, with a statement confirming you’ve taken the micro-entity provisions Minimal notes covering accounting policies, share capital, advances and credits to directors, and commitments, guarantees or contingent liabilities Crucially, micro entities are exempt from preparing a directors’ report, and the profit and loss account is not filed publicly — competitors, customers and suppliers can’t see your turnover or profit margins. A full P&L is still prepared for the company’s members and for HMRC with the Company Tax Return, but it stays off the public register. FRS 105 also keeps things simple by prohibiting fair-value and revaluation accounting, so there are fewer judgement calls to get wrong. When it’s time to submit, see how to file micro entity accounts for the step-by-step process. What Qualifies as a Microbusiness? “Microbusiness” and “micro entity” aren’t quite the same thing, though people often use them interchangeably. A microbusiness is a broader term for any very small business — limited company, sole trader or partnership — while a micro entity is specifically a limited company that meets the thresholds above and files accounts under FRS 105. If you’re a sole trader or partnership, you don’t file accounts with Companies House at all, so the micro entity rules don’t apply to you — though you might still be called a microbusiness in general conversation. Does Being a Microbusiness Affect Your Taxes? No — your accounts format doesn’t change your tax bill. Micro entity status simplifies what you disclose, not how much Corporation Tax you pay. For the financial year beginning 1 April 2026, taxable profits up to £50,000 are taxed at the 19% small profits rate, profits over £250,000 pay the 25% main rate, and marginal relief tapers the rate in between. The real saving from micro entity accounts is in accountancy fees and your own time, not tax. For the detail, read our guide to Corporation Tax rates for micro entities. What Does “Micro Company Limited” Mean in Practice? The limits are straightforward numbers, but they’re worth understanding in practice: Turnover is measured before costs. If you invoice £700,000 but your actual profit is tiny because of high costs, you’re still assessed on the £700,000. This catches some people out. Balance sheet total is about what you own, not what you earn. Your company might have low turnover but own valuable equipment or property that pushes the balance sheet over £500,000. Equally, you might turn over £900,000 but rent everything and keep minimal cash in the bank, staying under the limit. The 10-employee test counts everyone — full-time, part-time, permanent and temporary — as an average across the year. If you have 12 people for two months during a busy period but 8 for the rest of the year, you’d average around 8.7 and still qualify. Choosing the right annual accounts format for your size matters — if you’re unsure where you stand, an accountant can run the tests in minutes.