Paying VAT correctly is a fundamental duty for any VAT-registered business in the UK. Whether you’re newly registered or a seasoned business owner, understanding how to pay VAT on time, in full, and via approved HMRC channels is essential for both compliance and cash flow management.

VAT (Value Added Tax) is a consumption tax applied to most goods and services in the UK. While customers ultimately bear the cost, businesses are responsible for collecting it and paying it to HM Revenue & Customs (HMRC). Missing deadlines or paying incorrectly can result in penalties, interest charges, and compliance VAT investigations.

This guide is designed to give UK small business owners an authoritative step-by-step explanation of how to pay VAT in 2025 — covering everything from registration to payment methods, VAT schemes, due dates, and avoiding common mistakes. We will also look at the digital requirements introduced under Making Tax Digital (MTD) and how they impact your VAT process.

The process of paying VAT in the UK broadly involves:

1. Registering for VAT when your turnover exceeds the threshold or voluntarily to reclaim input VAT.
2. Charging VAT correctly on your sales and issuing VAT invoices.
3. Submitting VAT returns through MTD-compliant software.
4. Paying VAT to HMRC by the deadline via approved payment methods.

Failing to follow these steps can lead to financial and legal repercussions, which is why understanding the VAT payment process is critical for small business compliance.

Who Needs to Pay VAT in the UK?

Not every business in the UK needs to pay VAT, but if you meet certain thresholds or choose to register voluntarily, you must comply with all VAT rules and payment requirements.

1. The VAT Registration Threshold in 2025

As of 2025, the VAT registration threshold remains £85,000 in taxable turnover over a rolling 12-month period. This is not based on a fixed tax year but rather any continuous 12-month window. If your business’s taxable sales exceed this amount, you must register for VAT and start paying VAT to HMRC.

Taxable turnover includes:

• Standard-rated sales
• Reduced-rated sales
• Zero-rated sales (though these are taxed at 0%, they still count towards the threshold)

It does not include:

• VAT-exempt sales
• Income from goods or services sold outside the scope of UK VAT

2. Mandatory VAT Registration

You must register if:

• Your taxable turnover exceeds the threshold
• You expect your taxable turnover to exceed the threshold within the next 30 days
• You acquire goods worth more than £85,000 from an EU VAT-registered supplier in a 12-month period
• You take over a VAT-registered business

Once registered, you will have to pay VAT to HMRC regardless of whether your customers are businesses (B2B) or consumers (B2C).

3. Voluntary VAT Registration

Small businesses below the threshold may choose to register voluntarily. Benefits include:

• Ability to reclaim VAT on purchases (input VAT)
• Improved business credibility with clients and suppliers
• Potential cash flow benefits under certain VAT schemes

However, voluntary registration also means additional administrative responsibilities and the legal duty to pay VAT on taxable sales.

4. Exempt Businesses

Some goods and services are VAT-exempt, such as:

• Postage stamps
• Financial services
• Education and training provided by eligible bodies

Exempt businesses cannot charge VAT or reclaim VAT on purchases, and they are not required to pay VAT.

Understanding the VAT Payment Cycle

To pay VAT correctly, you need to understand how the VAT payment cycle works. HMRC structures VAT reporting and payment around specific accounting periods, and missing a date can mean penalties and interest.

1. VAT Accounting Periods

Most businesses pay VAT quarterly, but some use annual or monthly returns depending on their cash flow needs and chosen VAT scheme.

• Quarterly Accounting (Standard)
  You submit a VAT return and pay VAT every 3 months. This is the default for most UK small businesses.
• Monthly Returns
  Chosen if you regularly reclaim VAT or have frequent input VAT to offset. This can help cash flow but increases admin work.
• Annual Accounting Scheme
  Available for businesses with an annual turnover of £1.35 million or less. You make advance VAT payments based on estimated liability, then file one VAT return a year.

2. VAT Return Deadlines

Your VAT return deadline is normally one calendar month and seven days after the end of your accounting period. This is also the VAT payment due date — meaning HMRC must receive your cleared payment by this date, not just your submission.

3. The Link Between VAT Returns and VAT Payments

You cannot simply pay VAT without filing a VAT return — HMRC needs to know the exact amount due, calculated from your VAT-registered sales (output VAT) minus VAT paid on purchases (input VAT). This figure is reported in your VAT return, and that’s the amount you must pay.

4. Impact of Late Payment

If you pay VAT late, HMRC’s late submission and late payment penalties apply under the new points-based penalty regime. In 2025, late payment charges include:

• Interest from the day after your due date
• Fixed percentage penalties if payment is more than 15 or 30 days late

5. Making Tax Digital (MTD) Requirements

Under MTD for VAT, all VAT-registered businesses — regardless of turnover — must:

• Keep digital VAT records
• Submit VAT returns via MTD-compatible software
• Ensure payment is made through HMRC-approved methods

Failing to comply with MTD rules can also trigger penalties in addition to any late payment charges.

Methods to Pay VAT in the UK

HMRC accepts several payment methods for VAT, but each comes with its own processing time. Choosing the right method — and paying early enough — ensures your payment clears by the deadline. Remember, pay VAT deadlines are based on the date the payment reaches HMRC, not when you send it.

1. Online or Telephone Banking (Faster Payments, CHAPS, Bacs)

• Faster Payments: Usually same day or next day. Works best for last-minute payments.
• CHAPS: Same-day transfer (if made before your bank’s cut-off time). Often used for larger payments due to its reliability.
• Bacs: Three working days to clear — not ideal if you are close to the deadline.

You’ll need HMRC’s VAT bank details, which vary depending on whether you use online banking or CHAPS. Always double-check you’re paying the correct HMRC account.

2. Direct Debit

Setting up a Direct Debit means HMRC collects your VAT automatically after you submit your return.

• Payment is taken three working days after your return deadline.
• You must set this up in advance via your HMRC VAT account.
• It’s convenient, but you must ensure there are sufficient funds in your account.

3. Debit or Corporate Credit Card

You can pay VAT directly on the HMRC website with a debit or corporate credit card.

• Payments usually clear within 3 working days.
• Personal credit cards are no longer accepted for VAT payments.

4. Standing Order (Annual Accounting Scheme)

If you’re on the Annual Accounting Scheme, you can make advance VAT payments via standing order.

• Usually monthly or quarterly instalments.
• The final balance is paid when your annual VAT return is submitted.

5. Bank or Building Society Branch (Cheque)

You can still pay by cheque at your bank if it offers this service.

• Must be made payable to ‘HM Revenue and Customs only’ followed by your VAT registration number.
• Slower method, as it depends on cheque clearing times.

6. Government Gateway Account Payments

Logging in to your Government Gateway VAT account allows you to make secure payments online. This links directly to your VAT return and ensures correct allocation.

Best Practices for On-Time VAT Payment

• Pay early: Even if you’re paying electronically, don’t leave it to the last minute. Bank delays happen.
• Use the correct reference: Your 9-digit VAT registration number, without spaces, is essential for HMRC to allocate your payment correctly.
• Keep proof: Always keep digital or paper proof of payment in case of HMRC queries.

Step-by-Step Guide to Paying VAT via HMRC Online

Paying VAT online through your HMRC VAT account is the most straightforward way for many small businesses to ensure compliance. Below is the full process for 2025.

Step 1: Submit Your VAT Return

You cannot pay VAT without first filing your VAT return, as HMRC needs to know the exact amount you owe.

• Log into your Government Gateway account.
• Use MTD-compatible software to submit your return (required for all VAT-registered businesses).
• Once submitted, your VAT liability will display in your account.

Step 2: Access the Payment Section

• In your Government Gateway VAT account, go to “View VAT account”.
• Select “Make a VAT payment”.
• HMRC will show the exact amount due, along with the payment deadline.

Step 3: Choose a Payment Method

You can choose:

• Debit or corporate credit card (3 working days to clear)
• Bank transfer (Faster Payments, CHAPS, or Bacs)
• Direct Debit (must already be set up)

HMRC will provide the relevant account details and your payment reference number (VAT registration number).

Step 4: Make the Payment

• If paying by card, follow the secure on-screen process.
• If paying via online banking, enter HMRC’s account details exactly as shown.
• Use your VAT registration number as the payment reference — no spaces or punctuation.

Step 5: Check Confirmation

• After payment, check your bank statement or HMRC account to confirm it has been received.
• Keep a screenshot or copy of the payment confirmation for your records.

Step 6: Retain Records

Under MTD rules, you must keep VAT records digitally for at least six years. Keep copies of:

• VAT returns
• Payment confirmations
• Supporting transaction data

Common Mistakes When Paying VAT (and How to Avoid Them)

Even experienced business owners can make errors when paying VAT. While some mistakes cause only minor delays, others can result in HMRC penalties, interest charges, or compliance investigations.

1. Missing the Payment Deadline

The Problem: Many businesses confuse the VAT return deadline with the payment deadline, not realising they are the same. Payment must clear into HMRC’s account by the due date.

How to Avoid:

• Check your VAT online account for your specific due dates.
• Set reminders well before the deadline.
• If paying close to the deadline, use Faster Payments or CHAPS to ensure same-day clearance.

2. Using the Wrong Payment Reference

The Problem: Entering an incorrect VAT registration number or adding spaces/punctuation can prevent HMRC from matching your payment to your account.

How to Avoid:

• Always use your 9-digit VAT registration number with no spaces.
• Copy and paste directly from your VAT certificate or HMRC account.

3. Paying the Wrong Amount

The Problem: Miscalculations on your VAT return lead to underpayment or overpayment. Underpayment triggers penalties; overpayment ties up cash until HMRC refunds it.

How to Avoid:

• Double-check your return calculations before submission.
• Use MTD-compliant accounting software to reduce manual errors.

4. Relying on Slow Payment Methods

The Problem: Cheques or Bacs transfers can take too long, especially if posted or initiated close to the deadline.

How to Avoid:

• Switch to digital payment methods.
• If you still use Bacs, initiate payment at least three working days before the deadline.

5. Forgetting to Submit the VAT Return

The Problem: Some businesses pay VAT but forget to file their VAT return, meaning HMRC cannot match the payment and may treat it as non-compliance.

How to Avoid:

• Always file your VAT return before making payment.
• Use your HMRC online account to confirm both submission and payment status.

6. Ignoring MTD Rules

The Problem: Submitting VAT returns outside MTD-compliant software is now non-compliant for all VAT-registered businesses. This can trigger penalties even if you pay VAT on time.

How to Avoid:

• Keep digital VAT records.
• Use HMRC-approved MTD-compatible software for all submissions.

Frequently Asked Questions 

1. How do I pay VAT to HMRC?

To pay VAT, first submit your VAT return using MTD-compliant software. Then log in to your Government Gateway VAT account, view the amount due, and choose an HMRC-approved payment method such as bank transfer, debit card, or Direct Debit.

2. What is the deadline to pay VAT in the UK?

The deadline to pay VAT is normally one calendar month and seven days after your VAT accounting period ends. HMRC must receive the cleared payment by this date, not just your submission.

3. Can I pay VAT before filing my VAT return?

No — you must file your VAT return first. HMRC will only accept a payment when it is linked to a submitted VAT return, as the return confirms the amount you need to pay VAT.

4. What happens if I don’t pay VAT on time?

If you fail to pay VAT by the deadline, HMRC will charge interest from the day after your due date. They may also apply late payment penalties under the 2025 penalty system, especially if you are more than 15 or 30 days late.

5. Can I pay VAT in instalments?

Yes — in some cases, you can arrange a Time to Pay agreement with HMRC if you cannot pay VAT in full. This must be agreed before your payment deadline to avoid penalties.

6. How do I pay VAT if I’m on the Flat Rate Scheme?

If you use the Flat Rate Scheme, you still pay VAT quarterly (or annually under Annual Accounting). However, instead of calculating VAT on each sale, you apply a fixed percentage to your gross turnover. Your payment process remains the same via HMRC’s approved channels.

7. How do I pay VAT under the Annual Accounting Scheme?

With the Annual Accounting Scheme, you make advance payments towards your annual VAT bill. These are usually monthly or quarterly instalments by standing order. You then file one VAT return a year and make a balancing payment if needed to pay VAT in full.

8. Can I pay VAT by credit card?

You can pay VAT with a corporate credit card, but personal credit cards are no longer accepted. Be aware there may be fees for using a corporate credit card.

9. What payment reference should I use when I pay VAT?

When you pay VAT, use your 9-digit VAT registration number with no spaces as the payment reference. This ensures HMRC allocates the payment to your account correctly.

10. How long does it take for HMRC to receive my VAT payment?

• Faster Payments: Same day or next day
• CHAPS: Same day
• Bacs: Three working days
• Debit/Credit Card: Up to 3 working days
  Plan your payment so HMRC receives it before the deadline to pay VAT.

11. Can I reclaim VAT I’ve overpaid?

Yes — if you overpay VAT, you can reclaim it from HMRC. This is usually done by adjusting your next VAT return or requesting a repayment directly through your HMRC account.

12. How do I pay VAT if I trade internationally?

If you trade internationally, you still need to pay VAT on your UK taxable supplies. However, import VAT and reverse charge mechanisms may apply, affecting the amount you owe. Always ensure correct reporting before making your VAT payment.

 

At Axis Solicitors, we specialise in guiding UK small businesses through VAT compliance,  from registration and filing to ensuring you pay VAT on time and avoid HMRC penalties. Whether you need advice on VAT schemes, payment deadlines, or resolving a dispute with HMRC, our expert solicitors are here to help.