Paying VAT When Cash Is Tight — Practical Guidance for Construction Businesses
- Brian Pusser
- Nov 12
- 3 min read
If you’ve found yourself staring down a VAT bill you can’t fully pay, you’re not alone — and you do have options. Here’s how to stay compliant and minimise penalties when cash is tight.
Always Submit Your VAT Return on Time
Even if you can’t pay the full VAT due, always file your return by the deadline.
Why? Because if HMRC issues an estimated assessment (which could be lower than what you owe) and you knowingly pay that smaller amount, you could face a penalty of up to 30% of the difference.
Tip: HMRC will only consider a payment plan if all your VAT returns are up to date, so keeping your filings current is essential.
Part Payments Are Better Than No Payments
If full payment isn’t possible, pay as much as you can by the due date.Interest will still apply to the balance, but this approach shows HMRC that you’re acting responsibly.
HMRC charges:
3% penalty on any VAT unpaid after day 15 of the due date.
A further 3% if it’s still unpaid after day 30.
Interest at 4% above the Bank of England base rate (as of 1 April 2025).
Tip: Every pound you pay early reduces your interest and penalties later.
Set Up a Time-to-Pay Arrangement (TTP)
You can avoid penalties altogether if you contact HMRC and set up a Time-to-Pay (TTP) agreement before the end of day 15 after your VAT due date.
There are two ways to do this:
Online Payment Plan
You may qualify to set up a plan online if:
You owe less than £100,000
You have no other outstanding returns or payment plans
You can repay the debt within 12 months
You are not using the cash accounting or annual accounting schemes
If you meet these conditions, it’s often the quickest and simplest route.
Telephone Payment Plan
If your debt exceeds £100,000, or your business doesn’t meet the online plan criteria, call HMRC’s Business Payment Support Service on 0300 200 3831 (Monday–Friday, 8am–6pm).
Be prepared to discuss:
Your current income and expenses
How your business plans to recover
How much time you realistically need to clear the debt
Tip: If you miss the day 15 deadline, contact HMRC before day 30 to prevent the second 3% penalty.
A Real-World Example
Mary runs a construction firm and filed her September 2025 VAT return showing £50,000 owed. Cash was tight, and she could only pay £10,000 by 7 November 2025.
To avoid a £1,200 penalty (3% of the remaining £40,000), Mary contacted HMRC and agreed a payment plan before 22 November 2025 (day 15). She’ll still pay interest from 8 November but avoids the penalty charge — and stays in good standing with HMRC.
Key Takeaway for Construction Business Owners
When cash flow is tight, the priority is to stay proactive and communicate early:
File your VAT return on time
Pay what you can immediately
Set up a time-to-pay plan before day 15 after the due date
A short conversation with HMRC now can save you hundreds — even thousands — in penalties later.
Professional Insight
As accountants, we know cash flow challenges are part of life in the construction trade — especially when payments are delayed. The key is not to panic but to act quickly and strategically.
If you’re facing VAT pressure or need help negotiating with HMRC, we can step in to help you manage the process, keep your compliance on track, and minimise your exposure to penalties.
👉 Contact us today to discuss your cash flow position and get professional support before deadlines catch up.
