VAT, PAYE and Corporation Tax: Modelling HMRC Payments in Your Cash Forecast
HMRC is the most predictable creditor an SME has, and the one most often missing from the forecast. Every payment date is knowable months ahead — there is no excuse for a tax bill being a surprise.
In a weekly cash forecast, most lines are estimates. Tax payments are not — the dates are fixed by statute and the amounts are calculable from the ledger. Yet the single most common cause of an unexpected overdraft breach in a UK SME is a VAT quarter and a payroll landing in the same week, unmodelled.
The UK payment calendar
| Liability | Timing | Forecast treatment |
|---|---|---|
| VAT (standard quarterly) | One month and seven days after the quarter end | Discrete outflow on the exact date, from the VAT control account balance |
| PAYE and NIC | 22nd of the following month electronically (19th if paying by post) | Fixed monthly outflow, sized from the payroll journal |
| Pension auto-enrolment | Usually by the 22nd, per the scheme's payment schedule | Fixed monthly outflow alongside PAYE |
| Corporation tax (small) | Nine months and one day after the year end | Single large outflow, diarised twelve months ahead |
| Corporation tax (instalments) | Quarterly, starting within the accounting period | Four outflows, recalculated as the profit forecast moves |
| P11D and Class 1A NIC | P11D by 6 July, Class 1A payable by 22 July | Small but frequently forgotten July outflow |
Model the VAT control account, not an estimate
The forecast VAT payment should come from the movement on the VAT control account, split into output VAT on invoices raised and input VAT on purchases, not from a percentage of revenue. The percentage method breaks the moment sales mix includes zero-rated, exempt or reverse- charge items — and it breaks silently, which is worse.
- Reconcile the VAT control account as part of the month-end close, every month.
- Carry the closing control balance into the forecast as the known liability for the current quarter.
- Accrue the in-progress quarter from the actual invoice and purchase ledger to date, not from a ratio.
- Place the outflow on the statutory payment date in the weekly grid, never spread across the month.
- Where a large capital purchase creates a reclaim, model the refund date realistically — HMRC repayment can take several weeks and may be selected for verification.
Schemes that change the timing
- Cash accounting — VAT accounted for on receipts and payments rather than invoice dates; strong fit for long debtor days.
- Annual accounting — one return with instalments through the year, which smooths the cash profile but reduces flexibility.
- Flat rate — simplified calculation for smaller businesses; worth re-testing annually as margin and input costs change.
- Payments on account — imposed above a large liability threshold, converting quarterly payments into monthly ones. This is a significant cash-timing change and is easy to be caught out by.
Scheme eligibility thresholds and rates change; confirm the current position on GOV.UK or with your accountant before modelling a switch.
Where SMEs get caught
- A strong quarter raises the VAT bill and the corporation tax accrual at the same time as growth consumes working capital.
- The VAT payment and the monthly PAYE run land in the same week — a fifth-week payroll month makes it worse.
- A deferred or time-to-pay arrangement is running and the instalments are not in the weekly forecast.
- Corporation tax is paid from the same account that funds the January and July cost peaks.
Set money aside, visibly
The simplest control is a separate tax reserve account funded weekly at the rate the ledger implies. It changes nothing about the liability, but it makes the available cash figure in the forecast honest — which is the whole point of the exercise.
Doing this in MouCFO
MouCFO's compliance calendar tracks VAT quarters, PAYE dates, corporation tax and Companies House filings against your year end, drives alerts ahead of each deadline, and places every statutory outflow on its exact date in the 13-week cash forecast rather than averaging it.
Frequently asked questions
When is VAT actually paid to HMRC?
For standard quarterly returns, both the return and the payment are due one calendar month and seven days after the end of the VAT period, with the payment leaving the account on that date if paid by Direct Debit or slightly earlier if paid manually. That means a quarter ending 31 March is paid on 7 May.
Does the VAT cash accounting scheme help SME cash flow?
Materially, if you have slow-paying customers and are under the turnover threshold. It moves the VAT liability from invoice date to receipt date, so you stop funding HMRC ahead of being paid. The trade-off is that you also only reclaim input VAT when you pay suppliers.
When do corporation tax quarterly instalments start applying?
Once taxable profits exceed the large-company threshold, corporation tax moves from a single payment nine months and one day after year end to quarterly instalments beginning during the accounting period. Crossing that threshold creates a one-off cash squeeze that should be modelled a year in advance.