Can't pay your VAT bill? Here is exactly what happens next.
Missing a VAT payment is more common than most business owners think, and it is recoverable. This page sets out what HMRC actually does and when, what it costs, and the options in front of you. We are a commercial finance broker, so we will also be straight about when borrowing is not the answer.
What HMRC does, and when
Late filing and late payment are charged separately. This is the payment side. The penalties changed on 1 April 2025 and are noticeably steeper than the old system, which catches out anyone going on what happened last time.
Interest starts building from the day after the deadline at 7.75% a year, but there is no penalty in this window. Pay inside 15 days and interest is all you owe.
A penalty of 3% of whatever is still outstanding is charged. On a £40,000 bill that is £1,200, on top of the interest still running.
Another 3% of what is still outstanding. The two stack, so a bill unpaid at day 30 has taken roughly 6% in penalties before interest.
A third penalty starts accruing daily at 10% a year until the balance clears, alongside the 7.75% interest. This is the point where waiting gets expensive quickly.
Interest is set at the Bank of England base rate plus 4 percentage points. It has been 7.75% since 9 January 2026. Check the current rate before relying on the figure.
Your three options
Talk to HMRC about Time to Pay
If the VAT bill is under £50,000 and you can clear it inside 12 months, you can usually set up a Time to Pay arrangement yourself online without phoning anyone. Interest still applies, but it stops the penalties escalating. This is often the cheapest route for a one-off slip and we will say so.
How Time to Pay works →Fund the bill and pay HMRC now
Finance clears the bill in full, which stops the penalty clock and the interest, and you repay over 3 to 12 months instead. This suits larger bills, bills where Time to Pay has been refused, and businesses that could technically pay but would empty the account doing it.
See VAT loans →Or let us put the pieces together
A VAT bill is rarely the only thing going on. Often the answer is not one product but a few fitted together, spreading the bill while an invoice facility frees up what customers already owe you, so payroll and suppliers still get paid. That is the actual job. Ten minutes on the phone with someone who does this every day beats guessing which single product to ask for.
Talk it through →Being straight about which is right
We arrange finance, so we have an obvious interest here. That is exactly why it is worth saying plainly when finance is the wrong call.
When Time to Pay beats us
Under £50,000, a clean compliance history and a genuine one-off. HMRC interest alone may cost less than commercial finance over a short window.
When funding wins
Bills over £50,000, a refused arrangement, or when draining the account to pay would leave you unable to cover payroll and suppliers next month.
When it needs more than one piece
When the same gap will reappear next quarter. One more loan is not the fix, but funding the bill while sorting what caused it often is. Tell us the whole picture and we will build round it.