Talk to HMRC first: a Time to Pay arrangement is often the cheapest option, and agreeing one early can stop penalties building. If HMRC won't agree terms that work, or you'd rather keep the debt away from HMRC, a short-term VAT or tax loan spreads the bill over 3 to 12 months. Either way, act before the due date.
Most tax bills don't come as a surprise. You know when VAT quarters end and when corporation tax falls due. What catches businesses out is timing: a big customer pays late, you've just bought stock, or a strong year means a bigger bill than last year's. The money exists, just not all of it on the day HMRC wants it.
This guide walks through the realistic options, roughly from cheapest to most expensive, and how to pick between them.
When UK tax bills fall due
It helps to know exactly how long you have. These are the standard deadlines:
| Tax | When it's due |
|---|---|
| VAT | One calendar month and seven days after the end of each VAT period (for most businesses paying electronically) |
| Corporation tax | Nine months and one day after the end of your accounting period, for most small and medium companies |
| Self assessment | 31 January for the balance of last year and your first payment on account, and 31 July for the second payment on account |
| PAYE and National Insurance | Usually by the 22nd of the following month if you pay electronically |
If you can see a shortfall coming, every week of notice gives you more options. A lender can usually arrange a tax loan in days. HMRC can agree a payment plan before the deadline. Neither can undo penalties that have already started.
What happens if you pay late
HMRC charges interest on late tax from the day after it was due, at the Bank of England base rate plus a margin set by HMRC. For VAT, it also charges late payment penalties: nothing if you pay within the first 15 days, then a first penalty, a further one after 30 days, and a daily penalty on top while the debt is outstanding. The rates are on GOV.UK, and they have gone up in recent years.
The important detail is that agreeing a Time to Pay arrangement early can stop late payment penalties building, although interest still runs. So the worst thing you can do is nothing.
Option 1: ask HMRC for Time to Pay
A Time to Pay arrangement lets you clear a tax debt in monthly instalments. It's often the cheapest way to borrow for a tax bill, because you only pay HMRC's interest. There's no arrangement fee and no lender margin.
- How to apply: smaller debts can be set up online through your business tax account. Above HMRC's online limit, or for corporation tax, you'll need to call the relevant HMRC payment support line. Check GOV.UK for the current limits.
- What HMRC looks at: whether you can afford the instalments, why you can't pay now, and whether your returns are up to date. Expect questions about income, spending and what you've done to raise the money.
- What it won't do: HMRC wants to see a plan you can keep. It may ask for a sizeable first payment, or a shorter term than you'd like. Miss an instalment and the arrangement can be cancelled.
Time to Pay suits a business that's fundamentally fine but has hit a one-off squeeze. If you need it every quarter, that's a sign the business needs a different fix (more on that below).
Option 2: a VAT or tax loan
Many lenders offer short-term loans built specifically for tax bills. They work like any other business loan, just sized and timed around HMRC:
- Term: usually 3 to 12 months, so a VAT loan is repaid before the next quarter or two comes round.
- Amount: the size of the bill, sometimes with a buffer.
- Speed: decisions are often quick once the lender has your bank statements and VAT return. Some lenders pay HMRC directly.
- Security: most are unsecured, though directors of limited companies are usually asked for a personal guarantee.
Why choose a loan over Time to Pay? Some businesses prefer to keep HMRC paid on time and deal with a lender instead. It keeps your tax record clean and means you aren't negotiating with HMRC every quarter. A loan can also be faster and more predictable when HMRC wants a shorter plan than you can manage.
What it costs: more than HMRC's interest in most cases, because a lender prices in its own risk and costs. Ask every lender for the total amount repayable in pounds, not just the rate, so you can compare offers properly.
A worked example. Say your VAT bill is £24,000 and you take a six-month loan. If the total repayable is £25,500, the loan costs £1,500, or £250 for each month you used the money. Set that against HMRC's interest on a Time to Pay plan, and against the hassle and risk of each option. This is an illustration, not a quote: your price depends on your business.
Option 3: use a facility you already have, or could have
Sometimes the right answer isn't a tax loan at all:
- Overdraft or revolving credit facility. If you have headroom, it can cover a short gap cheaply. Watch the cost if you'll stay overdrawn for months.
- Invoice finance. If you're owed money by business customers, invoice finance releases most of an invoice's value within days. When late payers are the reason you can't pay HMRC, this tackles the cause, not just this quarter's bill. See invoice finance vs a business loan.
- Merchant cash advance. If you take card payments, an advance repaid as a share of your card takings can bridge a gap without fixed monthly instalments. It's usually one of the pricier options. See how a merchant cash advance works.
Comparing the options
| Time to Pay | VAT or tax loan | Overdraft or facility | Invoice finance | |
|---|---|---|---|---|
| Typical cost | HMRC interest only | Lender's rate and fees | Facility rate, often variable | Fees plus a discount charge |
| Speed | Days to weeks | Often days | Instant if you have headroom | Days to set up, then ongoing |
| Who you deal with | HMRC | A lender | Your bank | A finance provider |
| Credit check | No credit search | Yes, usually a soft search first | Already done, or yes | Yes, plus checks on your customers |
| Best for | A one-off squeeze, if you act early | Keeping HMRC paid on time | Short gaps you can clear quickly | Bills caused by slow-paying customers |
What lenders look at for a tax loan
Lenders want to see that the tax bill is a timing problem, not a sign the business can't pay its way. Expect them to ask for:
- Recent business bank statements, usually the last three to six months. This is the most important document.
- The bill itself: your VAT return, corporation tax calculation or HMRC statement.
- Your latest accounts for larger amounts.
- Details of any existing borrowing, and whether you're already on a Time to Pay arrangement.
A business with steady income, a clean HMRC record and a one-off spike in its bill is the easiest case. If you already have overdue tax, some lenders will still help, but expect fewer options and a higher price. Our guide to the documents you need for a business loan covers the full list.
Common mistakes to avoid
- Waiting until after the deadline. Penalties and interest start running, and some lenders are wary of businesses already in arrears with HMRC.
- Comparing rates, not totals. A low headline rate with a big arrangement fee can cost more than a higher rate without one.
- Borrowing for longer than you need. A 12-month loan for a gap you'll close in three months costs more than it should.
- Solving every quarter with a new loan. If tax is always a scramble, fix the cause instead (see below).
- Mixing personal and business money. Paying a company tax bill with a personal loan or card blurs the line between you and the company, and can cause trouble later.
Stop it happening next time
Borrowing for one bill is fine. Borrowing for every bill means something needs to change:
- Put tax aside as you earn. A separate savings account for VAT and tax, topped up weekly, is the simplest fix there is.
- Look at the VAT schemes. The Annual Accounting Scheme spreads VAT into instalments, and the Cash Accounting Scheme means you only pay VAT on sales once customers have paid you. Both have turnover limits, so check whether you qualify.
- Fix slow payers. Shorter payment terms, deposits up front or invoice finance can all close the gap that leaves you short at tax time.
- Talk to your accountant early. A forecast of your next bill, a month before it's due, takes the surprise out of it.
Questions people ask
Can I get a loan to pay HMRC?
Yes. Many UK lenders offer short-term loans for VAT, corporation tax and other HMRC bills. They're usually unsecured, last 3 to 12 months, and some lenders pay HMRC directly on your behalf.
Is Time to Pay cheaper than a VAT loan?
Usually, because you only pay HMRC's interest. A loan can still be the better choice if HMRC won't agree a plan that works for you, or if you'd rather keep HMRC paid on time and deal with a lender instead.
Will a VAT loan affect my credit score?
Applying usually starts with a soft search, which doesn't affect your credit score. A full application involves a hard search, which shows on your business credit file, and on your personal file if you give a personal guarantee. Paying on time builds a positive record.
Can sole traders borrow to pay a self assessment bill?
Yes, though the rules differ. Lending of £25,000 or less to sole traders and small partnerships is regulated by the FCA, so fewer business lenders offer it. Larger amounts are generally treated as unregulated business lending.
What if I can't pay my VAT at all?
Contact HMRC before the due date and explain. Ignoring the bill is the most expensive option, because penalties, interest and eventually enforcement follow. If the business is struggling more widely, speak to an accountant or a licensed insolvency practitioner early. Free help is also available from business debt charities.
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This guide is general information, not financial advice. Rates, rules and lender criteria change, so check the details with your broker or lender before you sign anything. Lending Lenny is not a lender.