How to pay your VAT bill without draining your cash flow

Every small business owner will know the feeling: you’ve diligently put money aside regularly to cover your VAT bill, but then an unexpected expense occurs, or you’ve had a quiet few months, or a customer pays late, and all of a sudden your cash flow is looking precarious.

No matter how carefully you plan, VAT bills never seem to come at the right time. Big bills frequently create pinch points for small business owners, so what can you do to manage them?

Here are our tips for how to pay your VAT bill without it impacting your cash flow. 

Common mistakes business owners make with their VAT bill

Before we look at the best ways to deal with a VAT bill, here are three common mistakes small business owners make when faced with a HMRC bill, and how these might affect you: 

• Ignore the reminders from HMRC – If you fail to meet the deadline, HMRC issues you with penalty points that can lead to interest charges and other financial penalties 

• Panic and look for quick-fix finance – Short-term fixes can often come with high interest rates

• Rely on your emergency buffer without a plan to pay it back

How can I manage my VAT bill?

When it comes to regular HMRC bills, it pays to plan ahead as much as possible. However, as all business owners know, you also need to prepare for the unexpected. Having flexible finance on hand to cover those unplanned expenses could be a useful product in your financial toolkit.

Create a cash flow forecast 

Factor VAT payments into your cash flow forecast, ensuring you remember to include any large, one-off expenses. You can use accounting software to help estimate your VAT bills.

Once you have a rough idea of what’s due, it’s good practice to make monthly payments into a separate account specifically for VAT. You’ll need to be strict as it can be tempting to dip into this when you need short-term funds. 

Use a flexible line of credit  

A flexible line of credit gives business owners a pot of money they can access as and when they need it, helping you spread payments over a fixed term. 

With FlexiPay from Funding Circle you can pay upfront and choose to spread the cost over 1, 3, 6, 9 or 12 months, paying back in equal monthly instalments. There’s no interest or hidden costs – you pay one simple fee per transaction so you stay in control of your cash flow. 

Once you’ve repaid the loan amount, your credit limit recharges so have access to the funds again whenever you need them. There’s no need to reapply, which gives you peace of mind that there’s a back-up plan when cash flow is tight.

HMRC’s Time to Pay 

If you think you’ll be unable to pay your VAT bill, HMRC offers Time to Pay arrangements, allowing business owners to spread their tax liabilities over monthly instalments. Contact HMRC as early as possible and they will work with you to tailor repayments to your specific circumstances. 

Create a financial toolkit

Paying a VAT bill doesn’t have to drain your cash flow. With the right financial toolkit in place, you can have the funds on hand to cover any ups and downs.

If you think FlexiPay might help your small business manage VAT payments without the long-term commitment of a loan, you can apply online in minutes. There is no impact on your credit score and, once you’re approved, you can start making payments straight away.

02/01/26: While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.