If your company cannot pay its VAT bill in full by the deadline, two common options are an HMRC payment plan (often called Time to Pay) and a VAT loan. Both spread the cost, but they work differently. VAT Loans is a credit broker, so we explain both options and suggest you compare them on your company’s actual figures.
What is an HMRC Time to Pay arrangement?
It is an agreement with HMRC to pay tax you owe in monthly instalments. You may be able to set one up online; otherwise you contact HMRC. HMRC will ask how much you can repay each month and about your income, spending and savings. It decides whether to agree a plan and on what terms. Our guide to HMRC Time to Pay covers who can apply online, what HMRC asks and how penalties are affected.
What does each option cost?
Time to Pay: HMRC charges late payment interest on the outstanding balance until the tax is paid in full. The rate is the Bank of England base rate plus 4%. An agreed payment plan can mean lower or no late payment penalties, depending on when you ask, so contact HMRC as early as possible. See how late payment penalties work. For HMRC’s current rates and a worked example, see our VAT late payment penalty calculator.
VAT loan: the lender charges interest and may charge fees. If the loan pays HMRC by the deadline, HMRC penalties and interest do not arise on that bill. Compare the total amount repayable, not only the monthly figure. Our VAT loan calculator shows how fees change the total cost.
The tax treatment of loan interest and HMRC interest may differ. Ask your accountant before relying on a tax saving in your comparison.
How do they compare?
| Question | HMRC Time to Pay | VAT loan |
|---|---|---|
| Who decides? | HMRC | The lender, after assessing the application |
| What will they ask for? | Income, spending, savings and what you can afford | Company, VAT and financial information, such as accounts and bank statements |
| What does it cost? | Late payment interest on the outstanding balance; penalties depend on timing | Interest and any fees in the quotation |
| Is a guarantee needed? | HMRC’s payment plan guidance does not mention a personal guarantee | Depends on the lender; a personal guarantee may be required |
| What if a payment is missed? | Check the terms HMRC sets when it agrees the plan | The loan agreement sets out the consequences |
When might each suit your company?
A payment plan may suit a company that needs longer to pay and can agree affordable instalments with HMRC. A VAT loan may suit a company that can afford the repayments and wants HMRC paid by the deadline, for example while waiting for customers to pay. If the company cannot afford either, get advice before committing to more debt.
What should I do next?
Check the exact amount and deadline in your VAT account. If you plan to ask HMRC for time, do it before or as soon as possible after the deadline. If you are considering finance, check eligibility and compare providers’ terms. If the bill is already overdue, read what to do if you cannot pay your VAT bill.
Finance is subject to status, affordability and lender approval.