A director's guide to VAT and corporation tax cash planning

Why tax bills catch companies out

The trap with VAT and corporation tax is that the money sits in your account for months before it's due, looking spendable. VAT you charge customers isn't income — you're collecting it for HMRC. Corporation tax is owed on profit whether or not the cash is still there. Spend it in the meantime and the bill arrives with nothing behind it. The problem is almost never the tax; it's treating the money as yours.

Ring-fence as you go

The fix is boringly effective: move the tax aside as it accrues. Sweep a percentage of every sale into a separate savings pot for VAT, and set aside a slice of profit for corporation tax each quarter. When the bill lands, the money's already there. Directors who do this never have a tax cash crisis; those who don't have one most quarters. See how to budget for tax.

Time the payments and the returns

Know your dates and use them. VAT is usually quarterly; corporation tax is due nine months and a day after year end. Align your cash forecast to these so nothing surprises you, and file on time to avoid penalties. If a payment date clashes with a lean patch, you can sometimes agree a Time to Pay arrangement with HMRC — but plan for it rather than relying on it.

When the cash genuinely isn't there

Even well-run companies sometimes face a tax bill in a cash-tight month — a big customer paid late, a quiet quarter, growth that swallowed the cash. This is a timing problem, and timing problems are exactly what short-term funding solves. A facility bridges the bill so you pay HMRC on time and repay as the cash comes in. See funding a tax bill.

Fund it on the company, not on yourself

Borrowing to smooth a tax bill is sensible when it's a genuine timing gap, not a way to avoid facing a structural loss. Keep it on the business: Credicorp lends to the company, not to you personally, and takes no personal guarantee. Check it's affordable and short with the affordability calculator.