Planning cash flow around VAT and corporation tax

2 min read

VAT quarterlyDue a month + 7 days after

CT annually9 months + 1 day after year-end

Ring-fence itSet the cash aside as you go

Taxable profit (£)

Estimates UK corporation tax across the 19% small-profits rate, 25% main rate and the marginal-relief band between.

Why tax bills catch companies out

The danger with VAT and corporation tax is that the money passes through your account long before the bill arrives. You collect VAT on every sale and hold it until the quarter's return; you earn profit all year before the corporation tax falls due. If you treat that money as yours and spend it, the bill lands with nothing set aside to meet it. The problem is never the tax itself — it is the timing. See how to budget for tax.

The dates you must know

VAT is usually due one month and seven days after each quarter-end. Corporation tax is due nine months and one day after your accounting year-end, with the return itself due within twelve months. PAYE and National Insurance are monthly, by the 22nd. These dates never move by surprise, which is exactly why a company that plans for them never gets caught. Put them in your 13-week forecast.

Ring-fencing the cash

The simplest discipline is to move the tax you owe into a separate account as you incur it — a slice of every VAT-inclusive receipt, a monthly transfer for corporation tax based on your profit run-rate. Out of sight, out of temptation. When the bill arrives, the money is already there. It costs nothing and removes the single most common cash shock from your calendar. Work out the figure with the corporation tax calculator.

When a bill still bites

Sometimes a large tax bill coincides with a lean month, even with the best planning — a strong prior year taxed while the current one is quiet. A short facility can smooth that specific spike so you pay HMRC on time and avoid interest and penalties, which are far more expensive than sensible borrowing. HMRC's own Time to Pay is another route worth knowing.

Smoothing the spike

Where a known tax bill lands on a thin month, funding it deliberately protects the rest of your cash flow.

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Frequently asked questions

Why do tax bills cause cash flow problems?

Because the money passes through your account long before the bill arrives. Collected VAT and earned profit feel like available cash, and if spent, the bill lands with nothing set aside. It's a timing problem, not a tax problem.

When are VAT and corporation tax due?

VAT is usually due one month and seven days after each quarter-end. Corporation tax is due nine months and one day after your year-end. Neither date moves by surprise, so both can be planned for.

How do I make sure the cash is there?

Ring-fence it — move a slice of every VAT-inclusive receipt and a monthly corporation-tax provision into a separate account as you go. When the bill arrives, the money is already waiting.