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

One of the common questions business owners ask during cash flow issues is, “Can you pay VAT in instalments?” The answer is yes. You can pay Value Added Tax (VAT) in instalments if you meet the eligibility criteria set by HM Revenue and Customs (HMRC). 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. Let’s discuss how you can pay VAT in instalments, and what instalment options you can choose to pay your bills. This guide also highlights the solutions businesses can turn to if they are unable to meet their liabilities.

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Can I Pay VAT in Instalments in the UK?

Many business owners also ask, Can you pay HMRC in instalments? Yes, you can pay VAT in instalments. The Time to Pay (TTP) arrangement by HMRC often makes it easier for businesses to pay their VAT bills. However, HMRC is not always keen to set up a VAT payment plan for certain companies. There are specific criteria set by HMRC. If you meet the criteria, you can pay your tax bill in instalments. HMRC may refuse assistance if it doubts your company’s long-term financial visibility. It only offers VAT payment plans as a temporary emergency measure. If HMRC believes your business is not financially viable, it may reject your application. Moreover, you can get a VAT payment plan if cash flow issues are temporary and caused by some unforeseen events, like equipment failure. If you can demonstrate that your business is financially stable, HMRC may approve your request to pay VAT in instalments. Now that your question, “Can you pay VAT in instalments?” is answered, let’s discuss if you can submit VAT online.

VAT Instalments Through Time to Pay (TTP) Arrangement

Paying through a TTP arrangement is the most common way to pay VAT in instalments. It is a negotiated agreement that allows businesses to pay their outstanding VAT over 6 to 12 months.

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

Can You 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. If your business owes £50,000 or less, you may be eligible to set a VAT payment plan online. Also, your business’s tax returns must have been filed, and you cannot have any payment plans in place with HMRC. If your business is in the Annual Accounting Scheme or Cash Accounting Scheme, you may not be eligible to set up an HMRC VAT payment plan online. Note: It is essential to have your Unique Taxpayer Reference (UTR) at hand and HMRC bank details before applying for a VAT payment plan.

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 the most common way to pay online VAT. Set up this method at least 3 working days before filing 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. Then, you will be redirected to your banking app to authorise the payment immediately.

How to Apply for a VAT Instalment Plan?

Follow this process to establish a VAT instalment payment system.

Contact HMRC Early

Call HMRC Payment Support Service Before Your Deadline When You Realise VAT Difficulties.

Prepare Your Financial Details

Be ready to provide HMRC with all financial information about your business operations.

Negotiate a Repayment Plan

Establish a payment arrangement that occurs simultaneously when your business receives cash.

Confirm Agreement

Keep your schedule after HMRC accepts your plan by making the agreed payments on time.

Can You Pay VAT in Instalments Online

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 the most common way to pay online VAT. Set up this method at least 3 working days before filing 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. Then, you will be redirected to your banking app to authorise the payment immediately.

What Happens If I cannot Set Up a Payment Plan Online?

You need to inform HMRC if you cannot set up a payment plan online. Consider the following questions while telling them about your payment plan:

If you can pay in full
How much can you repay monthly
How much do you earn
What investments or savings do you have
If there are any outstanding taxes to pay
How much do you spend in a month

It is best to contact HMRC to set up a payment and budget plan.

Can You Pay VAT in Instalments Through The Annual Accounting Scheme?

Yes, you can pay VAT through an annual accounting scheme. It is available to businesses with a taxable turnover of £1.35 million or less. VAT bills can sometimes be huge and may drain your financial account. It is possible that you may not be able to cover a big lump sum. In such cases, you can use an annual accounting scheme to pay VAT in instalments if your business is not in debt to HMRC. Under the annual accounting scheme, you file one VAT return per year. But you can make 3 quarterly instalments or 9 monthly instalments throughout the year. When you file your annual return, you make a final balancing payment. This helps you pay your VAT in regular and predictable instalments, before the final tax bill even arrives.

What are the Pros and Cons of Annual Accounting?

In the UK, small businesses can pay their VAT in instalments through annual accounting. This scheme reduces administrative burdens by replacing quarterly returns with a single annual submission. Nevertheless, there are some drawbacks to paying VAT through the annual accounting scheme. It offers predictable budgeting via intsalments but it may not be suitable for businesses that reclaim VAT frequently.

Pros of Annual Accounting

Some of the pros of annual accounting are:

Reduces paperwork because you file only one VAT return in a tax year instead of four.
It provides simpler reconciliation by preparing the return alongside annual accounts.
It offers you extra time. You get two months after your year-end to submit your return and pay bill.

Cons of Annual Accounting

Some of the cons of annual accounting are:

It has a length commitment, meaning once you leave, you cannot rejoin for a year.
It has fixed payments. Your quarterly payments are set based on your past performance. Interim payments can be high if turnover falls.
If you overpaid VAT, HMRC does not pay interest on it.
The refunds are delayed. You can receive one refund per year. This is not suitable for businesses in a regular repayment position.

Can You Pay VAT in Instalments Through Third-Party VAT Finance?

Some businesses do not qualify for HMRC’s internal plans. For such businesses, other options are available, such as finance options or specialised VAT loans. These are short-term loans where the lender pays HMRC on the business’s behalf. Later, the business repays the lender in monthly instalments over 3 to 12 months. If you have missed a deadline, this option can be a faster alternative because HMRC does not always negotiate once it has started enforcement action.

Why Immediate Action is Required for Paying VAT in Instalments?

You must act quickly because HMRC has tightened its VAT late penalty regime. If VAT remains unpaid after 15 days, penalties may apply. Additional penalties increase if the payment is still outstanding after 30 days. You don’t pay a penalty if you pay in full by the end of day 15. Furthermore, there is an additional 3% of the amount you still owe on day 30, and after 30 days, you pay 10%. It is best to proactively ask, “Can you pay VAT in instalments?” before your due date. This way, you can protect your business’s financial health. Engaging with HMRC early makes approval and instalment requests more likely. For more details regarding late payment penalties, visit the official government website.

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The Bottom Line

Businesses face challenges while navigating the complexities of the UK tax laws. However, HMRC offers flexibility to ensure your business doesn’t fail because of temporary cash flow issues. Understanding “can you pay VAT in instalments” helps you to set up a payment plan and explore options to pay VAT. Whether you choose the Annual Accounting Scheme, Time to Pay arrangement or private VAT finance, the ability to pay your tax in instalments is crucial. You must keep accurate records and always ensure your filings are up to date. If you are still confused and need professional help, visit our website, MicroEntityAccounts. Our experts help you through the entire tax process, from registration to filing tax returns. You can read our other guides on VAT for more information:

The content provided on Micro-Entity Accounts, including our blog and articles, is for general informational purposes only and does not constitute financial, accounting, or legal advice.

Joe Smith

Joe Smith is a seasoned accounting professional with over a decade of specialised experience in UK Micro-Entity Accounts. Throughout his 10+ year career, he has focused on helping small business owners navigate the complexities of FRS 105 and statutory filing requirements. Joe is an expert in streamlining the preparation of abridged accounts for Companies House and ensuring full compliance with HMRC regulations. His deep understanding of the micro-entity regime allows him to help small enterprises minimise their disclosure requirements while maintaining financial accuracy and transparency.

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